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Nigeria_Fixed Income: 5-year high inflation figure sparks selloff

Market commentary

• Following a marginal moderation in the system liquidity at week open to c.N119 billion, interbank placement rates rose further, with the Call rate up 250bps to 10.5%. At the FX interbank market, the Naira appreciated 20 kobo to NGN199.05/USD, retracing from an intraday high of NGN198.74/USD.

• The fixed income market opened on a bearish note as investors reacted to the higher than expected April inflation figure which came in at 13.7% y/y (March: 12.8% y/y) vs. consensus forecast of 13.5% . In the T-bills market, yields edged 23bps higher on average with sell pressure weighted across maturities on the short-mid end of the space. Particularly, the 17DTM (+98bps), 24DTM (+59bps), and 38DTM (+57bps) bills closed at 4.91%, 5.03%, and 5.22% respectively. Whilst buying momentum picked up towards the end of trading session in the bond market, the initial selloff recorded in the early hours of trading ensured that yields closed 10bps higher on average. Notably, yields on the 16.00% FGN JUN 2019 and 16.39% FGN JAN 2022 bonds rose 17bps and 20bps to 14.05% and 14.22% respectively.

• Whilst we anticipate a relatively calmer trading session tomorrow as market participants further reflect on the worse than expected inflation figure, we expect the risk-off sentiment to persist. Hence, we foresee a modest uptick in yields.