Daily performance of major economic indicators and highlights from tradings sessions and key statistics such as Treasury Bills, bonds, FX rates, inflation, oil price. This report is dated April 10th.
Bond Yields Trend Higher Following Selloff on Mid and Long Tenors
***Senate approves N1.64tr new borrowing to fund budget deficit***
The FGN Bond market traded on a bearish note, with yields rising higher by c.10bps on the day following some selloff mostly on the 2027s and 2036s towards the close of trading, with yields on both maturities traded as high as 14.75%.
We expect yields to remain slightly pressured tomorrow, as selling interests persist especially on the mid to long end of the curve.
Trading sentiments in the T-bills market remained relatively flat as buying interests were constrained by the tight system liqudity levels. Traders were better buyers however of some short tenors, while sentiments on the mid to long end of the curve remained slightly bearish.
We expect trading activities to remain relatively muted in the near term, due to the relatively subdued interests for Tbills at current levels.
Rates in the money market moderated by c.4pct despite the despite the relatively tight system liquidity levels, as banks were able to access the CBN’s SLF for their funding needs. The OBB and OVN rates consequently ended the session at 15.43% and 16.21% respectively.
We expect rates to remain at current levels tomorrow, as there are no significant inflows anticipated.
At the Interbank, the Naira/USD rate was unchanged at N307.00/$ (spot) and N355.78/$ (SMIS). The NAFEX closing rate in the I&E window appreciated marginally by 0.04% to N360.55/$, as market turnover improved by 50% to $132m. At the parallel market, the cash rate depreciated further by 0.14% to N358.90/$, whilst the transfer rate remained unchanged at N364.00/$.
The Nigeria sovereigns recorded some gains in today’s session, with yields marginally lower b c.2bps on the day. Whilst we witnessed renewed demand for some short and mid tenors, we witnessed slight sell on the longer end of the curve.
In the Nigeria Corps, we witnessed continued interests on the ACCESS 21s Snr, ZENITH 22s and FIDBAN 22s.
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Whilst proper and reasonable care has been taken in the preparation and accuracy of the facts and figures presented in this report, no responsibility or liability is accepted by Zedcrest Capital or its employees for any error, omission or opinion expressed herein. This report is not an investment research or a research recommendation and should not be regarded as such. The information provided herein is by no means intended to provide a sufficient basis on which to make an investment decision.
Collapse in domestic bills and bonds yields forcing local funds into stocks
A collapse in yields on domestic bills (3 months at 0.35%) and bonds (five-year at 3.5%) is forcing local funds into stocks.
EFG Hermes has stated that a collapse in domestic bills yield (3 months at 0.35%) and bonds yield (five-year at 3.5%) is forcing local funds into stocks.
This is according to a recent report by the company tagged: 2021 The Year Ahead — Is the Recovery in the Price?
The report notes that current fixed income yields, of which bills and bonds are a part, seem unsustainable – citing that real 12 month yields are -13.8%. Hence, the report suggests that the country is likely to remain a cautious market for foreign investors in 2021.
Despite the awareness, the company is of the opinion that fixed income yields in Nigeria could stay higher than 2020 lows for the next few months, which may lead to heavy bond issues in early 2021, as precedent suggests.
- The company believes that the macro context is weak and policy-making is unpredictable in the country – pointing that although the country is facing a slow-burning BoP and fiscal crisis, it appears the authorities are making little efforts towards the difficult decisions necessary to put the economy and market on a sustainable footing.
- This may, according to the company, impact earnings growth negatively in 2021 and 2022.
Accordingly, the report contends that this is one of the reasons why foreign investors avoid investing in the country’s instruments – noting that foreign investors seem to be happy selling to the local institutional bidders so that current data on holdings and flows depicts there is not much foreign money left in the market – as illustrated by foreign and domestic portfolio investment.
What EFG Hermes is saying
- “While foreign portfolio investors are seeing some relief on the backlog, until we see serious policy changes, we do not think foreign investors will become net buyers of Nigerian stocks. There is no indication that such changes are in the pipeline.
- “We, therefore, expect a rising share of future net contributions to go to stocks, as well as cash coming from bond and bill maturities. However, we note that PFAs remain reluctant buyers, and the list of stocks in which they are happy investors is short.”
Interest rates will remain low until the end of H1 2021 – Meristem Securities
Meristem Securities has argued that interest rates will remain low until, at least, the end of H1 2021.
Meristem Securities has asserted that interest rates will remain low until, at least, the end of H1 2021.
This statement was made at the recently held webinar on Global Economy and Outlook, which the company themed: Bracing for a Different Future.
Although the company acknowledged that there is mounting pressure for upward movement in yields from several stakeholders, it appears the company concurs nothing concrete is in sight.
This line of reasoning seems to have influenced their decision to advise investors to move away from Treasury instruments.
What they are saying
Meristem advises that:
- “Buy and hold strategy investors seeking to generate above average returns should move away from risk free Treasury instruments and focus on investment grade commercial papers and bonds which satisfy investment objectives.”
- “Active traders with higher risk appetite are advised to focus on high-yield short duration instruments, which would be re-invested into a higher yield environment should rate reversals occur.”
The advice regarding shunning Treasury instruments appears to be in order, considering that treasury bill rate has been declining, with the latest figure — November 2020 — 0.03% as per the CBN monthly interest rate data.
Further checks from the Debt Management Office website, indicates that the latest figures for Eurobonds and Diaspora bond fall short of the fixed yield at issue for all the different categories of bonds in issue.
What you should know
Latest figures from the CBN’s monthly interest rate indicate that:
- Treasury bill rate has been on a steady decline for six months, down to 0.03% since the last rise (2.47%) in May 2020.
- Fixed deposit rates (one, three, six and twelve months) have also been declining – the latest figures for these indicate that in November 2020, one-month deposit rate was 1.92%, 2.9% for three months, 2.84% for six months, and 4.89% for 12 months.
- Compared with the corresponding period in 2019, the figures indicate that these rates fell by 75%, 66%, 71% and 49% respectively.
DMO offers N150 billion worth of FGN Bond for subscription in January 2021
The DMO has offered for subscription, FGN Bonds valued at N150 billion for January 2021.
The Debt Management Office (DMO) has announced the offer for subscription, Federal Government Bonds (FGN Bonds), valued at N150 billion for January 2021.
This is according to a notification released by the DMO and seen by Nairametrics. The latest offers come in three tranches:
- N50, 000,000,000 – 16.2884% FGN MARCH 2027 (10-Year Re-opening).
- N50, 000,000,000 – 12.50% FGN MARCH 2035 (15-Year Re-opening).
- N50, 000,000,000 – 9.80% FGN JULY 2045 (25-Year Re-opening).
Other key highlights of the recent offer
- Units of Sale: N1, 000 per unit subject to a minimum subscription of N50,001,000 and in multiples of N1,000 thereafter.
- Auction Date: January 20, 2021.
- Settlement Date: January 22, 2021.
- Interest Payment: Payable semi-annually.
What you should know
- Checks by Nairametrics revealed that the latest FGN Bond offer across three maturities is N90billion more than amount offered in the previous month (December 2020) at N60billion, indicating an increase of 150%.
- Interested investors were advised to contact offices of any of the listed 13 Primary Dealer Market Makers (PDMMs).
- The DMO reserves the right to alter the amount allotted in response to market conditions.
- FGN Bonds are debt securities (liabilities) of the Federal Government of Nigeria (FGN), issued by the Debt Management Office (DMO) for and on behalf of the Federal Government. The FGN has an obligation to pay the bondholder the principal and agreed interest as and when due.