Bond Prices Rise on Liquidity Boost


By Obinna Chima

The over-the-counter (OTC) bond prices climbed last week amid boost in liquidity. Specifically, the 20-year, 10% FGN JUL 2030 paper, the 10year, 16.39% FGN JAN 2022 debt, the 7-year, 16.00% FGN JUN 2019 and the 5-year, 14.50% FGN JUL 2021 debt appreciated by N0.66, N0.63, N0.70 and N0.67 respectively.

According to a report by Cowry Assets Management, corresponding yields fell to 16.35% (from 16.52%), 16.26 (from 16.47%), 16.21 (from 16.67%) and 16.35% (from 16.60%).

But Afrinvest Securities Limited attributed the performance of the market to investors’ reaction to lower stop rates at the Treasury Bills Primary Market Auction (PMA) held during the week.  Consequently, it stated that yields dropped on bonds across tenors.

The market, according to them, started the weak slow with average yield flat at 16.9 per cent last Monday and Tuesday despite marginal interest in the JUL 2034(-4bps), MAY 2018 (-3bps), MAR 2019 (-2bps) instruments.

However, the market turned bullish on Wednesday, as average yield fell by 21 basis points (bps) to close at 16.7 per cent and further by 6bps on Thursday.

Afrinvest added: “We attribute this to lower stop rates on the 181-Day and 364-Day Treasury Bills at the PMA on Wednesday. This led to increased interest in long duration bonds, with the 20-year and 15-year benchmark bond yields falling 23bps and 17bps week-to-date (WTD) on Thursday.

“The bullish sentiment lingered till Friday as yields further fell 4bps on average across trading bonds to close at 16.6%, down 0.3% week-on-week.

“We expect the market to pullback next week after substantial gains this week as investors take profit and free up liquidity for upcoming PMAs.”

 During the week, the N100.0 billion 7-year Sovereign Sukuk bond was opened for subscription and is expected to close on the 20th September, 2017.

The instrument offers a 16.47% rental rate and will be used for the construction and rehabilitation of key roads across the six geopolitical zones of the country.

Elsewhere, FGN Eurobonds traded on the London Stock Exchange depreciated in value for most of the maturities amid renewed profit taking.

Prices of the 10-year, 6.75% JAN 28, 2021, the 10-year, 6.38% JUL 12, 2023 fell by $0.16 (yield rose to 4.43% from 4.39%), $0.21 (yield rose to 5.12% from 5.08%). However, prices of the 5-year, 5.13% JUL 12, 2018 bonds appreciated by $0.08 (yields fell to 3.22% from 3.29%) respectively.

“This week, we expect bond prices to moderate at the OTC market on the back of expected tightening in the financial system,” Cowry Assets stated.

In a reversal of the bullish trend across the African Eurobonds over the past month, last week’s performance was characterised by profit taking on majority of the instruments. Yield on all instruments save for the Gabon 2017 (-12bps), Nigeria 2018 (-9bps), Senegal 2021 (-6bps) and South Africa 2020 (-2bps), declined week-on-week.

Nigeria’s 2032, 2023 and 2021 bond yields rose 6bps, 4bps and 3bps to 6.5%, 5.1% and 4.3% respectively. Also, performance across the Nigerian Corporate Eurobonds was mixed last week.

Specifically, FirstBank’s 2020 received the most buy interest (down 0.5% week-on-week to 9.0%) followed by the Access 2021 (down 0.1% week-on-week to 7.3%). On the other hand, the largest Diamond 2019 and UBA 2022 bond yields rose 6bps apiece week-on-week to 13.8% and 7.7% respectively.

Diamond 2019 and FirstBank 2021 were the best performing this year with year-to-date returns of +21.8% and +19.1% respectively.

“Although we do not expect this bearish performance to be sustained, we believe investors will be looking towards the conclusions of the US FOMC meeting in the coming week,” Afrinvest added.

Interbank Market

In the money market last week, the open buy back (OBB) and overnight rates trended lower on all trading days despite open market operations (OMO) mop-ups by the central bank on four days in the week.

On Monday OBB and overnight rates closed at 22.3% and 23.1% respectively as the CBN offered a total of N40 billion via OMO auctions, but was undersubscribed with only N7.1 billion mopped up.

Continuing, rates trended lower on Tuesday as OBB and overnight closed at 20 per cent and 20.8 per cent respectively even as the CBN floated yet another OMO auction (86-day and 191-day). Similar to the previous day, investor appetite was weak due to low liquidity; hence no sale was recorded on the 86-day instrument while the 191-day was undersubscribed. Furthermore, OBB and overnight rates moderated 0.7 per cent and 0.8 per cent on Wednesday and further declined on Thursday to settle at 10.7 per cent and 11.3 per cent respectively, following an OMO maturity of N156.7 billion which boosted system liquidity. In all, OBB and overnight closed the week at 11.3 per cent and 12.2 per cent, down 11 per cent and 18.8 per cent week-on-week.

Nonetheless, in the treasury bills market, activities at the start of the week remained pressured by tighter liquidity levels.

Average rate across tenors opened the week at 17.7 per cent but declined four bps by the close of trade on Thursday following release of the result of treasury bills PMA held mid-week which showed stop rates dropped on longer dated bills auctioned.

Sentiment stayed bullish on Friday due to improvement in liquidity and investor reaction to result of the PMA; hence, rates further dropped seven bps on average to 17.6, indicating a 21 bps week-on-week decline across tenors.

On Wednesday, there was a treasury bills maturity worth N174.1 billion which was rolled over at the PMA.

The central bank offered N39 billion of the 91-day (subscription: N23 billion, allotment: N22.9billion), N48.5 billion of the 182-day (subscription: N25.3 billion, Allotment: N25.1 billion) and N86.7 billion of the 364-day (subscription: N338.9 billion, Allotment: N126.1 billion) instruments at marginal rates of 13.3%, 17.4% and 17.8% respectively.

“In the coming week, despite the OMO maturity of N140.9 billion expected to hit the system, we expect money market rates to remain at current levels as the central bank continues with its frequent OMO mop up,” Afrinvest stated.


Forex Market

At the Official segment of the FX market, the CBN conducted its weekly SMIS sales with $100 million, offered at a fixed rate of N330/$1 while official rate pegged at N305.95/$1 all through the week. At the Interbank market, the naira appreciated 0.8% week-on-week against the dollar to close at N355.49/$1 last Friday.

At the parallel market, the naira held steady at N367/$1 between Monday and Wednesday but closed lower at N369/$1 on Thursday, indicating a 1.1 per cent depreciation week-on-week.

However, at the I&E window, activities remained robust with weekly turnover put at $803.14 million last week, as against $705.1 million recorded the preceding week.

Notwithstanding, rate opened the week at N359.50/US$1.00 and depreciated on all trading days save for Tuesday where it traded flat, to close the week at N359.78 to a dollar.

At the FMDQ OTC Futures market, current total value of open contracts for the 12 instruments on the calendar stood at $2.6 billion as at Thursday, 14th September, with the soon to mature SEP 20 2017 being the most subscribed at a value of $383.30 million and contract price of N358.50/$1. The least subscribed remains the MAY 30 2018 instrument, currently trading at N363.33/US$1.00 with total value of subscriptions at US$42.3 million.


 Electronic Capital Importation Certificate

Desirous of enhancing foreign investment flow into the country, the CBN last week directed banks and other authorised dealers to immediately commence the issuance of electronic Certificates of Capital Importation (eCCI). The central bank stated this in a letter signed by its Director, Trade and Exchange Department, W.D. Gotring, a copy of which was posted on its website.

The letter stated: “In a bid to enhance transparency and efficient processing of foreign investment flows to the country, the Central Bank of Nigeria hereby informs authorised dealers and the public of the deployment of the electronic Certificate of Capital Importation (eCCI) platform.

“Accordingly, the eCCI shall replace the hard copy CCI normally issued in respect of all capital inflows either in form of cash or machinery/equipment.

“Consequently, effective from Monday, 11th September 2017, the processing of Certificate of Capital Importation in Nigeria shall only be done electronically on the eCCI platform. Please note and ensure compliance accordingly.”

A CCI is a certificate issued by Nigerian banks confirming the inflow of foreign capital, either in the form of cash (loan or equity) or goods.

A CCI is usually issued in the name of the investor within 24- 48 hours of the inflow of the capital into Nigeria.


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