Nigeria_Fixed Income Daily: Yields race north following higher than expected inflation rate

Market commentary

• Despite a marginal improvement in system liquidity to N200 billion, the Interbank Call rate advanced 6bps to 7.5%. At the FX interbank market, the Naira remained unchanged at NGN199.05/USD after recording an intraday high of NGN197.00/USD.

• Yields raced north in today’s trading session as market participants reacted to the significant acceleration in monthly CPI (Feb: 11.38% y/y vs. Jan: 9.6% y/y). Consequently, yields advanced 59bps on average in the T-bills market with the most notable increase recorded on the 37DTM bill, up 153bps to close at 7.17%. Similarly, bond yields rose 18bps on average. Particularly, yields on the 16.00% FGN JUN 2019 and 15.54 FGN FEB 2020 bonds advanced 26bps and 22bps to 10.74% and 11.50% respectively.

• At tomorrow’s T-bills PMA, the CBN will offer N167 billion across the 91DTM (N33 billion), 182DTM (N50 billion) and 364DTM (N83 billion). Also, the DMO will offer N100 billion across the 5-year (N20 billion), 10-year (N40 billion), and a new 20-year issue (N40 billion) at tomorrow’s bond auction. Amidst a relatively tight system liquidity, we believe rates at the two auctions will be pegged higher than the current market levels as market participants continue to price in the higher than expected February inflation rate.