Bond Yields Rise As The Market Size Up The MPC Meeting and Bond Auction Coming This Week


By Zedcap Partners Limited



FGN Bonds

The bears dominated the FGN bond market opening the week as traders remained aggressively offered across the curve with very few bids to match. The weak appetite for FGN bonds despite the scarcity of short-term instruments can be attributed to the uncertainty surrounding monetary policy, which is also further compounded by the deep negative carry on bonds at the moment (average FGN bond yields minus Inflation rate). Most investors have resulted in staying at the short end of the curve, pending when there is more clarity in the interest rate environment. Yields consequently expanded by c.12bps on the average across the benchmark curve.


The outcome of the MPC meeting to be announced tomorrow is expected to give more clarity on the Apex’s view on the interest rate environment, coupled with the monthly FGN Bond auction right after, we expect investors to remain on the sidelines as the direction of rates becomes clearer later in the week.

Treasury Bills

The Treasury Bills market opened the week on a tranquil note, as bearish sentiments stayed firm, triggered by the depressed system liquidity. Bids remained scarce for most of the session, even on the 1-year OMO bill which had enjoyed the spotlight in the previous week, as local banks focused on their short-term funding positions in light of tight system liquidity.


However, we expect the market to remain order-driven this week, with a slight bearish bias as market participants seek to take profit on their positions towards month-end.


Money Markets

Despite rates coming down from the previous week’s high of 25% (the highest levels seen since July 2020), system liquidity remained tight extending the tightest month seen in the last 20 months. OBB and O/N rates closed at 14.50% and 14.75%, with some local banks relying on funding from the CBN Lending (Repo) window to funding their short cash positions.


With the FAAC meeting concluded, we expect system liquidity to ease up as c.N310Bn is expected to hit the system tomorrow.

FX Market

The I&E FX window opened the week on a muted note, as supply dropped by 44% D/D (c.$25.88mio traded) within the range of N401.00/$ and N412.00/$. The closing rated depreciated slightly, weakening by 0.03% to close at N410.13/$.


At the parallel market, the Naira made a positive move, as the transfer rate appreciated by N1.00/$ (0.20%D/D) to close at N494.00/$ while the cash rate remained unchanged at N482.50/$.


The Eurobonds space started the week at a different pace, as we saw primary market moves being made across the SSA space. Finance ministers for both Nigeria and Ghana announced intentions for both countries to tap the Eurobond market for new issues. On the corporate side, Seplat Petroleum Development Company announced the bankers to its proposed 5-year new issue, which the company will use to refinance its existing SEPLLN 2023 papers at current lower rates.


The market showed mixed reactions to the impending supply from the proposed new issues. The NIGERIA Sovereigns curve reacted negatively, with yields expanding by c.4bps on the average across the sovereign curve. The NIGERIA Corps on the other hand has a positive trading session, with demand seen across most of the tracked papers.

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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 a piece of investment advice 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.

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