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Nigeria_Fixed Income Daily: Bond market bearish ahead of PMA

Market commentary

• With system liquidity still around the N40 billion mark, Interbank Call rate was largely unchanged, down mildly by 17bps to 18%. At the FX Interbank spot market, the Naira depreciated 20kobo to NGN282.67/USD whilst trading at one year forward closed at NGN317.82/USD.

• As expected, bears continued to dominate activities in the T-bills market with sell pressure evident across most maturities (yields 115bps higher on average). Particularly, yields on the 72DTM (+336bps), 100DTM (+324bps), and 149DTM (+345bps) bills recorded the most significant rise, to close at 12.76%, 12.61%, and 13.16% respectively. The bond market also maintained a bearish trading pattern ahead of tomorrow’s primary market auction (yields up 20bps on average). The 15.10% FGN APR 2017 and 12.40% FGN MAR 2036 bonds recorded the most sizeable upticks in yield, up 23bps and 38bps to 13.01% and 14.80% respectively.

• At tomorrow’s bond auction, we expect stop rates to close slightly higher than current secondary market levels as participants price in the possibility of a higher June inflation figure amidst tight system liquidity. That said, we foresee a relatively cautious trading session ahead of the release of the auction outcome.