Inflation Takes New Turn Ups By 16.47%, Bond Yields React Negatively

Yields across the FGN Bonds curve weakened further for another consecutive off the back of higher inflation figures as well as increased borrowing pressure on the DMO as it outlined plans to convert the ways & means funding from the Central Bank of Nigeria (CBN) into long term funding.

Bids weakened across the benchmark curve at the open of trading, as the market resumed to higher-than-expected increase inflation (aggregate expectations stood at 16.20%), and remained there for the rest of the session. Yields expanded further by c.24bps on the average across the benchmark curve at the close of trading.

With the monthly bond auction finally upon us, we expect another dull trading session as market participants focus on the DMO’s response to already elevated yields (8-month highs).

Treasury Bills

Secondary market activity for Treasury Bills picked up some steam, following liquidity injection via OMO maturities of N208Bn driving improved demand from local banks. We noted mid-date securities (Aug. 2021 maturities) trading at 8.60% levels, while long-dated bills (Feb. 2022s maturities) traded around 9.55%. Rates across the benchmark curve remained unchanged at the close of the trading session.

We expect a slowdown in demand for OMO bills from local banks, as they look to the CBN for the supply of better rates at the primary auction expected later in the week. 

Inflation Takes New Turn Ups By 16.47%, Bond Yields React Negatively

Money Markets

OMO maturities of N208Bn boosted system liquidity to open at c.N463Bn positive, pushing interbank rates down for another consecutive trading session. OBB and OVN rates dropped by an average of 150bps, to close at 2.50% and 2.75% respectively.

We expect funding rates to oscillate in tandem with the available system liquidity in the short term, with OMO and FGN Bond auction debits expected to squeeze on available liquidity later in the week. 

FX Market

Volumes traded in the I&E FX window went up by 8% with $30.44mio changing hands D/D, while the Naira remained stable to close at N409.67/$ for the second day in a row. Intraday, rates ranged between a low of N390.00/$ and a high of N410.00/$.

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The Naira appreciated at the parallel market by N1.00K boosted by the FX supply from weekly collections by the BDCs from the Apex bank. Cash rates closed at N473.00/$, while the transfer rates remained unchanged at N489.00/$. 

Eurobonds

It was a typical bearish session in the NIGERIA Sovereigns, with some profit-taking action seen, especially on the mid-and long-end causing yields to expand slightly by c.3bps on the average across the sovereign curve. Generally, yields across the SSA space suffered the effect of renewed demand seen on U.S. Treasuries. The Kenyan government’s agreement with the IMF on a $2.4Bn loan brought some respite to space, although short-lived.

In contrast to the Sovereign papers, the NIGERIA Corps papers were bullish although still maintaining a tranquil trading session with significant movement seen on the Zenith 2022s and UBANL 2022s  papers, which declined by -c.25bps and 16bps D/D respectively.