By Zedcrest Partners ltd
The bearishness in the FGN bond market was sustained as the markets resumed this week, as market participants continued to react negatively to the increased supply at the primary auction as outlined by the DMO in its issuance calendar for Q2. Selling pressures persisted across the benchmark curve, with yields on the mid-dated papers (2026s – 2029s) moving as much by an average of 25bps higher. At the long ends, sellers remained for the 2034s and 2036s papers but with little demand seen as the yields in that space continues to be distorted by yields on the 2045s which continued to comfortably trade above the 13% mark. Yields closed the session by c.7bps higher on the average across the benchmark curve.
We expect the selloffs to sustain in the interim, as the real demand for bonds continues to stay on the sidelines in anticipation of higher yields at the primary market in line with the theme all year.
The treasury bills space opened the week on a slow note, as demand for short-dated maturities couldn’t be matched with available supply mostly of long-dated maturities. Market participants looked to offload holdings on long-dated papers (Jan. – Mar. 2022) in anticipation of higher rates at the coming primary auction scheduled for mid-week.
We expect the market to remain strained in the interim, as sustained interbank liquidity continues to constrain local banks from taking on any positions
The interbank system liquidity dipped by c.1156% opening the week at just N3.80bn positive, as the Central Bank maintains a tight grip on excess system liquidity. The OBB and O/N rates remained relatively stable, shedding off c.25bps on the average to close at 12.00% and 12.25% respectively.
We expect funding rates to remain firmly in the double-digit region, with OMO maturities of just N20bn dropping tomorrow expected to have minimal impact on system liquidity.
The FX market resumed trading on a somber note, despite attempts by the Central Bank to curb some outstanding demand for the greenback. The Apex bank intervened in the market, after a long absence, focusing its sales to foreign portfolio investors looking to exit their positions from the Nigerian capital markets. Traded volumes dropped by 18% from the previous day’s close (c.$45.35mio traded), with the Naira depreciating by N0.75k to close at N409.75/$.
At the parallel market, the Naira strengthened as both the cash and transfer rates appreciated by 0.52% (N2.50k) and 0.52% (N2.52k) respectively.
The NIGERIA Sovereigns bounced back from negative yield movements seen the previous week, as improved global oil prices shed a positive light on the papers across the sovereign curve. Yields dropped across on the sovereign curve by c.1bps on the average with most of the demand seen on the 2027s and 2038s papers.
Conversely, the NIGERIA Corporates traded with negative sentiments as we saw sellers across most of the tracked papers/ The ACCESS 2021s and ETINL 2024s led the losers chart as yields on both papers increased by c.52bps and c.5bps respectively.
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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.