Bond Yields Rise on Sell Pressure



By Obinna Chima

The bond market was characterised by sustained sell-offs by investors last week thereby leading to a rise in yields in the market.

For instance, FGN Eurobonds traded on the London Stock Exchange depreciated in value for all maturities tracked amid renewed bearish activity.

The 10-year, 6.75% JAN 28, 2021, the 5-year, 5.13% JUL 12, 2018 and the 10-year, 6.38% JUL 12, 2023 decreased in value by N0.23, N0.02 and N0.20 respectively; just as their corresponding yields rose to 5.24% (from 5.16%), 6.14% (from 5.91%) and 5.76% (from 5.71%) respectively.

A report by Cowry Asset Management Limited also showed that FGN bonds traded at the over-the-counter (OTC) segment declined in value for all maturities tracked on sustained sell pressure.

That is, the 20-year, 10% FGN JULY 2030 debt, the 10-year 16.39% FGN JAN 2022 debt, 7-year 16.00% FGN JUN 2019 debt and the 5-year 14.50% FGN JUL 2021 debt depreciated by N0.38, N0.22, N0.06 and N0.39 respectively while their corresponding yields rose to 13.38% (from 13.30%), 13.54% (from 13.48%), 11.79% (from 11.78%) and 13.63% (from 13.48%) respectively.

For this week, the firm anticipatedincreases in the bond prices at the OTC market on the back of anticipated N70 billion FGN Bonds auction at lower stop rates in line with downward inflationary trend.

On the other hand, analysts at Afrinvest Securities Limited anticipated thatactivities in the bond market for this week would be largely determined by decisions made at the Monetary PolicyCommittee (MPC) meeting which commences today, as speculations of policy easing continue to mount.
However, it noted that sentiment towards Nigerian Corporate Eurobond was mixed during the week, as yield onsix of 11 instruments declined week-on-week. Specifically, during the week, theACCESS 2021 enjoyed the most buy interest, while DIAMOND 2019 experienced the most sell off.

The best performing instruments were DIAMOND 2019 and FBNH 2021 – up 4.2% and 2.8% respectively.

Money Market

Last week, in the money market, the open buy back (OBB) and overnight (OVN) rates declined week-on-week due to changes in system liquidity attributable to open market operations (OMO) and primary market repayments in the system. System liquidity significantly fell at the start of the week from a surplus of N579.6 billion in the prior week to a deficit of N68.9 billionlast week. Resultantly, the OBB and OVN surged at the start of the week, up 85 percentage points (ppts) and 90.8ppts to settle at 150 per cent and 164.2 per cent respectively, relative to 65 per centand 73.4 per cent the preceding Friday.

However on Tuesday, the OBB and OVN rates crashed to 15.3 per cent and 16.4 per cent respectively even as system liquidity deficit expanded to N80.1 billion.

But by midweek, OBB and OVN rates inched eight ppts and 8.3ppts higher to 23.3 per cent and 24.7 per centrespectively as a result of a reduction in system liquidity deficit to N62.9 billion,while OBB and OVN rates trended southwards on Thursday to settle at 13.3per cent and 13.7 per cent following OMO (N262.6 billion) and treasury bills (N67.7 billion) maturities which offset the impact of respective auctions held.

At the OMO auction on Thursday, the Central Bank of Nigeria issued 112-day (offered: N58.14 million, Sale: N58.14million) and 182-day (offered: N88.6billion, sale: N40.9 billion) instruments at 11.1 per cent and 12.2 per centrespectively.

Nevertheless, the OBB and OVN rates closed the week at 7.8 per cent and nine per cent, down 57.2ppts and 64.4ppts respectively week-on-week.

But given the moderating yield environment and the impact of the downward trend in inflation, analysts at Afrinvest expect investors’ appetite in longer tenored instruments to be sustained.
Also, performance in the treasury bills market was largely bullish last week, reversing a 2-week bearish run as average rate across tenors trended lower on four of the five trading sessions.

During the week, the CBN carried out a Primary Market Auction (PMA) in which the 91-day (offered: N3.4 billion, subscription: N3.7 billion, Allotted: N3.4 billion), 182-day (offered: N16.9billion, subscription: N20.9 billion,allotted: N16.9 billion) and 364-day (offered: N13.5 billion, subscription: N48.6 billion, allotted: N13.5 billion) instruments were issued at stop rates of 10 per cent, 10.5 per cent and 10.7 per cent respectively. All instruments were oversubscribed and allotted as offered.
“In line with our short term outlook, the treasury bills market posted a bullish performance as investors continue to take position in longer dated instruments and we expect this to be sustained in the short term,” Afrinvest added.

Forex Market

In the week under review, the naira appreciated week-on-week against the US dollar at the Investors & Exporters Forex Window (I&E FXW) by 0.06 per cent to close at N360.85 amid weekly injections by Central Bank of Nigeria (CBN) of a total of $503 million into the foreign exchange market.

But the naira weakened against thedollar at the parallel market and the Bureau De Change segments by 0.28 per cent each to close at N364/$1 and N362/$1 respectively while the Naira/USD rate remained unchanged at the interbank foreign exchange market at N330/$1.

Meanwhile, most dated forward contracts at the interbank over-the-counter (OTC) segment appreciated –one-month, two-month, three-month contracts strengthened by 0.13 per cent, 0.14 per cent and 0.09 per cent to closeat N364.29/$1, N368.13/$1 and N372.30/$1 respectively. However, spot rate and 6-month contracts weakened by 0.02 per cent and 0.10 per cent to closeat N305.85/$1 and N386.25/$1respectively.

“This week, we expect depreciation in the exchange rate at the I&E forex window as 0.17 per cent wee-on-weekdecrease in the external reserves to$47.79 billion in the concluded week showed pressure on the green back,” analysts at Cowry Asset Management stated.


For the 15th consecutive month since January 2017, the inflation rate recorded a decline in April from 13.34 per cent in March 2018 to 12.48 per cent (year-on-year), even as food prices remained high.

Last month’s drop in the Consumer Price Index (CPI) inched closer to the Central Bank of Nigeria’s (CBN) target of 12 per cent of less, signposting the commencement of monetary policy easing by the central bank possibly by the second half of 2018.

According to the latest figures released by the National Bureau of Statistics (NBS), the CPI, which measures inflation stood at 12.48 per cent (year-on-year) in April 2018, indicating a 0.86 percentage points drop in the 13.34 per cent rate recorded in March 2018.
Also, on a month-on-month basis, the headline index increased by 0.83 per cent in April 2018, up by 0.01 percentage points from the rate recorded in March.

FG’s Focus Labs

The federal government last week disclosed that the Focus Labs of its Economic Recovery and Growth Plan (ERGP) identified 164 projects spread across the six geopolitical zones of the country with a total potential investment of US$22.5 billion.

The investments, it stated, are capable of creating 513,981 jobs by 2020, pointing out that of the of US$22.5 billion potential investment, US$10.9 billion worth of private investments are categorised as ‘most ready’ to go.

The Minister of Budget and National Planning, Senator Udoma Udo Udoma said that “specifically, disaggregating with respect to each of the work-stream, US$4.73 billion worth of investment have been identified in the agriculture and transport labs, with a potential to create 129,00 jobs,” while US$9.25 billion investments with a potential of 378,000 new jobs were  identified  in the manufacturing and processing labs.
According to him, US$8.7 billion worth of investments will come from the power and gas sector with the potential of creating up to 7,000 jobs.
Udoma explained that the 164 identified  investment projects in the labs will extend beyond 2020, adding that by projection, the cumulative investment value of the identified projects could rise to up to US$39.12 billion by 2025 and about 716,079 jobs created.



Naira Mutilation

 The CBN has once moreadmonished Nigerians to treat the naira with utmost respect, noting that the national currency symbolises ‘our national pride.’

 The central bank also reminded Nigerians that Section 21 of the CBN Act 2007, which stipulates that the abuse of the naira through squeezing, staining, writing on, spraying and illegal sales, among others  as punishable offences, is still in force.

 CBN’s Deputy Governor, Corporate Services, Mr. Edward Adamu, who made the appeal last week, said the naira is “a symbol of the nation’s identity and pride,”  and deserved to be handled with respect.

He said: “The naira as a symbol of our national pride should not be sprayed or stepped on, should not be squeezed, defaced or stained. The naira should not be sold or counterfeited.”

 On why the exhibition of Nigeria’s past and present currencies in the bank’s museum was desirable, Adamu pointed out that “the exhibition explores the naira in terms of its life cycle from conception to the end of its life otherwise known as the birth to death of bank notes.”