Bond yields push higher as unemployment figures came out weaker for Q4’2020

• By Zedcrest Analysts

FGN Bonds

The Bond market opened the week on a slightly more active note, with spreads getting tighter across the curve. This came on the back of improved supply across the bond curve. At the belly of the curve, we saw sellers of the 2026s & 2029s papers, which traded above the 10.00% mark (moving up 10bps on the average). Selling interests also came out at the tail end of the curve, as offers of the ‘auction bonds’, 2035s & 2045s, flooding the markets at 11.10% and 11.25% levels respectively. Consequently, yields moved higher by c.3bps on the average across the benchmark curve.

For most of the week, we expect the market to be largely order-driven, with yields expected to continue to track slightly higher in line with the general weakness in the broader market sentiment. The release of higher unemployment figures by the NBS, as well as inflation expected to post higher this week, adds to our slightly bearish outlook.

Treasury Bills

Activities in the T-bills market were mixed, with some sell-offs on the short-dated papers and slight demand for the longer-tenured bills as local banks remained pressured by tight system liquidity. Traders remained firmly offered on short and mid-dated bills at low yields, which was shunned by real buyers who preferred the longest-dated bills offered at attractive levels. The 08-Mar-2022 OMO bill remained the most sought-after maturity, with the bulk of market trades executed around 8.30% levels during the trading session.

We expect the market to remain choppy opening tomorrow despite OMO maturities of c.N104Bn expected to hit the system, as banks are expected to prioritize reducing their interbank funding positions.

Money Markets

OBB and OVN rates dropped significantly by 113bps, closing the day at 12.50% and 12.75%, as local banks took advantage of the CBN Lending windows to ease off some funding pressures. System liquidity is estimated at c.N35Bn as at the close of business today.

We expect rates to ease further during tomorrow’s session as inflows from OMO maturities of over N104Bn are credited into the system, as banks are expected to pay down on their CBN Lending positions.

FX Market

At the I&E FX window, the closing rate for the Naira appreciated by N1.10k (0.27% D/D) to close at N408.90/$ despite a 21% D/D drop in traded volumes.

The Naira lost value at the parallel market, as the cash rate depreciated by c.0.31% to close at N482.50/$ while the transfer rate remained stable at N493.00/$.

Eurobonds

The NIGERIA Sovereigns opened the week on a bearish note as the market holds its breath ahead of the ‘Central Bank Week’ which sees the Central Banks in the USA, Japan, England as well as four other countries have their rate-setting meetings lined up throughout the week. Yields went up by an average of c.02bps across the sovereign yield curve.

The NIGERIA Corps tickers also opened the week on a negative note, with seller flows seen across most of the tracked tickers. Yields on the FIDBAN 2022s and SEPLLN 2023s recorded the biggest hikes, closing higher by 19bps and 42bps respectively.