Treasury bills remain toast of fixed income investors

** DMO releases Bond auction Calendar for Q3 2018, increases offers to B100bn ***

KEY INDICATORS

Indicator	Value	Commentary
Inflation	11.61%	NBS postpones release date for June 2018 CPI & Inflation report to July 23, 2018. Expectations range between 10.90% & 11.20%.
MPR	14.00%	Left unchanged at 14.00% at the MPC meeting on April 4, 2018. Next MPC meeting scheduled for July 23 & 24, 2018
External Reserves	$47.51bn	As at July 16, 2018. A c.0.60% decrease from $47.79bn as at July 2, 2018.
Brent Crude	$72.91pb	As at July 18, 2018. A c.1.43% increase from $71.88pb reported on July 17, 2018

Bonds

Yields in the bonds market continued to weaken across the curve, with yields expanding by c.0.02bps on the average across the curve. Demand pressures remained on the mid-end of the curve, where yields compressed by c.05bps on the FGN 2026 & 2028 maturities.

The Debt Management Office (DMO) released the much awaited Q3 2018 FGN Bond Calendar, with slightly higher volumes on offer, especially on the 10-yr Bond.

We expect Market reaction to this should be slightly bearish especially on the longer end of the curve.

FGN Bonds
Description	Bid (%)	Offer (%)	Day Change (%)
15.54 13-Feb-20	13.26	12.94	(0.01)
14.50 15-Jul-21	13.49	13.31	0.06
16.39 27-Jan-22	13.63	13.28	0.17
14.20 14-Mar-24	13.93	13.67	0.00
12.50 22-Jan-26	14.01	13.92	(0.03)
16.29 17-Mar-27	13.93	13.85	(0.02)
13.98 23-Feb-28	14.10	14.03	(0.07)
12.15 18-Jul-34	14.27	14.17	(0.01)
12.40 18-Mar-36	14.23	14.17	0.03
16.2499 18-Apr-37	14.23	14.11	0.02

Source: Zedcrest Dealing Desk

 Treasury Bills

The bullish rally in the T-bills market continued today, as discount rates compressed a further 16bps across the benchmark securities. Investor demand remained concentrated on the short to medium end of the curve, with discount rates compressing by 40bps on the average.

As expected at the Primary Auction, the DMO sold a total of N107.04bn across the 91-, 182- and 364-day tenors, while repaying N71.36bn in maturities. The rates for the 91-, 182- and 364-day bills closed at 10.00%, 10.50% & 11.49% respectively.

With OMO maturities of N430.18bn expected to hit the system tomorrow, we expect the Central Bank of Nigeria to float an OMO auction to manage excess liquidity. We expect the demand for T-bills to be sustained however as investors look to reinvest maturities from the T-bills repayment and bond coupon inflows.

Primary Market Auction  Results (18 July 2018)
Tenor	Rate (%)		Offer (N'bn)		Sub (N'bn)		Sale (N'bn)
91 days	10.00		5.85		6.64		5.85
182 days	10.50		26.60		26.82		26.60
364 days	11.49		145.96		140.94		74.59
Secondary Market Treasury Bills
Description		Bid (%)		Offer (%)		Day Change (%)
2-Aug-18		10.90		10.45		(0.30)
13-Sep-18		10.90		10.60		(0.40)
4-Oct-18		9.55		8.00		(0.50)
1-Nov-18		11.00		10.70		(0.20)
6-Dec-18		11.85		11.50		(0.05)
3-Jan-19		11.85		11.55		(0.05)
14-Feb-19		12.05		11.80		0.20
14-Mar-19		12.05		11.25		(0.05)
4-Apr-19		12.05		11.00		(0.05)

Source: Zedcrest Dealing Desk

 

Money Market

Rates in the interbank money markets continue to drop amidst sustained system liquidity. The overnight (O/N) and Open Buy-Back (OBB) rates closed at 5.67% and 6.67%, in line with the theme of the week.

The CBN is expected to float an OMO auction tomorrow to manage excess system liquidity as a result of inflows from OMO maturities (N430.18bn) and net T-bills repayment (N71.36bn). The level of aggressiveness in mop up by the CBN will determine the direction of money market rates in the interim.

Money Market Rates
	Current (%)	Previous (%)
Open Buy Back (OBB)	5.67	7.50
Overnight (O/N)	6.67	8.58

Source: FMDQ, Zedcrest Research

FX Market

The Naira remained relatively stable, with the Interbank rate closing at N305.85/$ (from N305.80/$ previously. The NAFEX rate appreciated slightly by 1k, closing at N361.69/$ (from N361.70/$ previously).

The Naira is gradually strengthening in the parallel market, gaining N0.20k across both the USD cash and transfer rates which closed at N358.50/$ and N362.30/$ respectively.

FX Market
	Current (N/$)	Previous ( N/$)
CBN Spot	305.85	305.80
CBN SMIS	330.00	330.00
I&E FX Window	361.69	361.70
Cash Market	358.50	358.70
Transfer Market	362.30	362.50

Source: CBN, FMDQ, REXEL BDC

  

Eurobonds:

A quiet trading session for NGERIA Sovereigns saw yields further expand by c.09bps on the average across the trade tickers in repricing.

The NGERIA Corps on the other hand continue enjoy investor interests, as yields compressed by an average of c13bps across the curve. Trading activities were witnessed on the GTBANK 18s, ZENITH 19s & FIDBANK 22s.