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The Market Today - 11 July 2018

Sovereign green bond market is a growth story – Moody’s                                                         

International ratings agency Moody’s has suggested that more sovereigns would turn to green bonds as a result of the need to promote sustainable policy agendas and encourage private capital into low-carbon and climate resilient infrastructure. Seven countries have issued green bonds already, led by Poland in December 2016, with $25.5 billion issued in total. Notably, Nigeria is one of the seven following its $35 million issue in December 2017. The potential of green bonds is sizable given the global environmental challenges, and the focus of the Nigerian government in the climate and environmental health of the country is a positive step. As investor's understanding of the nature and importance of green bonds grow, we expect the market for the instrument to bloom – and we foresee Nigeria being well-placed to reap from this given its early-mover status                                                            

Bears return to Nigerian bourse                                                              

The Nigerian equity market shed 60bps after losses in large cap stocks weighed on the exchange. Coming off a green close in the prior session, bearish sentiment became more pronounced in yesterday’s session, evidenced by red closes across all key sectors and increasingly negative market breadth. We expect the negative trading pattern to be sustained in today’s session.                                                     

Stock Watch: DANGSUGAR shed 8% in the last six sessions. The stock currently trades at a price of ₦17.50 (below our target price of ₦23.30) and has declined 13% YTD compared to the Consumer Goods sector’s 9% decline YTD.                                                    

Yields moderate at a slower pace than previous session                                                             

With the CBN maintaining its loose liquidity stance, the Interbank Call rate declined 683bps to 14.00%. Trading observed in the T-bills space was varied with a positive tilt, with yields declining 3bps on average. Specifically, while yields on the 65DTM (+46bps to 12.15%) and 177DTM (+18bps to 13.06%) bills advanced, yields on the 37DTM (-23bps to 11.64%) and 219DTM (-52bps to 12.68%) bills declined. Similarly, yields on benchmark bonds closed flat yesterday, declining a meagre 1bp on average with demand spread evenly across most tenors. Particularly, while yields on the 16.00% FGN JUN 2019 and 16.39% FGN JAN 2022 bonds both shed 5bps to settle at 13.06% and 13.75% respectively, yields on the 12.40% FGN MAR 2036 bond advanced 11bps to settle at 14.24%. In the absence of an OMO mop up and fresh supply from offshore traders, we expect demand to persist in the fixed income space.