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Breakfast Report - 15 February 2021

The Federal Executive Council recently approved a new Medium-Term Debt Management Strategy for the period 2020 – 2023. In this new strategy, the country’s debt-to-GDP ceiling and domestic-to-external debt mix were reviewed. The debt-to-GDP ceiling was raised from 25% to 40%, to support the financing of future budget deficits. In addition, the Council altered its domestic-external debt mix in favour of domestic debt. The ratio was reviewed from 60:40 to 70:30, reflecting higher future patronage of the local debt market. While lower foreign borrowing would reduce exposure of FGN liabilities to Naira fluctuations, increased local borrowing could crowd out the private sector. The country’s current domestic-to-external debt mix (63:37) reveals there is more room for domestic borrowing. The Strategy seeks to prioritize long-term funding in the domestic debt market and concessional funding from multilateral and bilateral sources. The Federal Executive Council recently approved a new Medium-Term Debt Management Strategy for the period 2020 – 2023. In this new strategy, the country’s debt-to-GDP ceiling and domestic-to-external debt mix were reviewed. The debt-to-GDP ceiling was raised from 25% to 40%, to support the financing of future budget deficits. In addition, the Council altered its domestic-external debt mix in favour of domestic debt. The ratio was reviewed from 60:40 to 70:30, reflecting higher future patronage of the local debt market. While lower foreign borrowing would reduce exposure of FGN liabilities to Naira fluctuations, increased local borrowing could crowd out the private sector. The country’s current domestic-to-external debt mix (63:37) reveals there is more room for domestic borrowing. The Strategy seeks to prioritize long-term funding in the domestic debt market and concessional funding from multilateral and bilateral sources.

Equity: The local market was weighed down by the profit taking activity, coupled with the negative reactions to the positive reversal of yields on short-dated instruments in the Fixed income market. In the absence of major positive catalyst capable of lifting investors' confidence, we expect the market to remain pressured in the near term.

Stock Watch: Following the significant sell pressure witnessed in previous weeks, investors cherry picked attractive counters with low prices in the Banking sector, thereby leading the sector to a positive close of 0.45% on Friday. Among others, gains were recorded in ACCESS (+188bps), ETI (+185bps), WEMABANK (+154bps), FIDELITYBK (+127bps), UBA (+123bps), ZENITHBANK (+81bps) and FBNH (+69bps).

Fixed Income: We expect the market to kick-off this week on a mixed note, as we do not see drivers to shift sentiment to the buy-side across the NTB and Bonds segments; however, we cannot rule out the possibility of cherry-picking activity in the bonds space, given where yields stand at the mid-long end of the market.