The Bears Reigned Unhinged in the Bond Market, Supported by Relentless Supply from local Investors

The Bond Market ended the week on a bearish note, as we saw better offers across the curve with the bid/offer spread widening aggressively. The mid and long-end bonds continued to garner the most traction weakening D/D by an average of 40bps and 70bps, respectively, as we saw small trades print for the 2050s paper at 8.50%. Market players relentlessly sort avenues to reduce their exposure on debt instruments; thus, yields expanded further by an average of c.65bps across the benchmark bond curve.

We do not expect any reversal in current market sentiment next week; most likely, yields would even worsen as market participants try to wrap up their books for year-end.

Treasury Bills

The early hours of trading opened with a slight interest in CBN special bills. We saw quite a significant amount of trade on that bill; however, market activities come to a halt as dealers rounded early, setting off into the holiday mood. Bid/Offer spread tightened compare to yesterday, causing rates to compress across the OMO/NTB curve by an average of c.90bps despite the inactive trading session today.

We expect market bearishness to resume, especially on the long-dated bills, as the market continues to shrug off the urge to trade at that end of the curve while anticipating the likelihood of reversing rates.

Money Markets

Interbank rates stayed steady, slightly dropping by c.16bps, supported with buoyant system liquidity, which opened the day at c.N545.92 positive. As a result, OBB and OVN rates closed lower, ending the week at 0.43% and 0.58%, respectively.

We expect the market to hold steady at this level at the beginning of the week but would most likely inch up slightly as the debit for the bi-weekly FX retail intervention hit the system.

FX Market

The FX market was quite boring today, with very thin flows passing through that space as market dealers wrap their books for the week in anticipation of the holiday season. However, we noted significant improvement at the cash/transfer market as the market generally snoozed into the holiday mood, thus appreciating by an average of N7.5k with the cash and transfer market closed the day at N464/$1 and N486/$1, respectively.

Eurobonds

The NIGERIA Sovereigns traded a quiet note today, with the mid-dated bonds strengthening while long-dated bonds remained unchanged. Although trading volumes stayed slim for the session, the bulk of market action was noted at the curve’s belly, especially in 2031s maturity. By and large, yields compressed by an average of c.1bps across the sovereign curve.

The ACCESS 2021s paper was the most active of the NIGERIA Corps tickers, as the yield on the paper weakened by approx. 24bps, while yields movement on other papers stayed around +- c.5bps.