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Nigeria_Fixed Income: Buying persisted ahead of MPC decision

Market commentary

•  Amidst a relatively unchanged level of system liquidity (c.N216 billion), interbank placement rates moderated marginally with the Call rate down 50bps to 7.92%. At the FX interbank market, the Naira remained unchanged for the sixth consecutive session at NGN199.05/USD.

• Ahead of the conclusion of the MPC’s two-day meeting, trading in the fixed income market was largely volatile as trading pattern indicated mixed opinions across the market amidst speculations about a possible pro-growth sentiment from the committee members. Overall, whilst sell pressure resurfaced on the short end of the T-bills market, yields declined further across most maturities on the mid-long end of the bill space. Similarly, yields in the bond market declined 18bps on average as sustained buying across most maturities outweighed selloff on a few maturities. Particularly, yields on the 15.10% FGN APR 2017 and 12.40% FGN MAR 2036 bonds declined 37bps and 31bps to 12.24% and 13.34% respectively.

• Following its 2-day MPC meeting, the MPC committee unanimously agreed to retain the MPR (12%), the asymmetric corridor (+2%/-5%), the Liquidity Ratio (30%), and CRR (22.5%). The committee also advised the CBN to adopt a flexible exchange structure while maintaining a window to fund critical transactions (details of the framework to be rolled out soon). With the policy decisions coming in more dovish than earlier expected amidst the possibilities of having a more flexible exchange rate environment, we believe these decisions are market positive and anticipate moderation in yields in the coming days.