Nigeria_Fixed Income Daily: Tight system liquidity pressures yields at week open

Market commentary

• With system liquidity down to N157 billion, Interbank placement rates advanced 162bps (on average) across all tenors. Particularly, the Call rate rose 214bps to 7.44% (6-week high). At the FX interbank market, the Naira depreciated 5 kobo to NGN199.05/USD after recording an intraday high of NGN198.00/USD.

• In line with our expectation, sentiment remained bearish in the T-bills market at week open as tighter system liquidity capped demand. Sell pressure was largely concentrated on the short-mid dated bills as yields advanced 49bps on average. Particularly, yields on the 17DTM (+88bps) and 94DTM (+84bps) bills recorded the most sizeable rise, closing at 6.10% and 6.50% respectively. Similarly, bearish sentiment remained dominant in the bond market amidst a cautious trading pattern ahead of Wednesday’s auction. Yields across all traded maturities advanced 8bps on average, save for the 12.1493% FGN JUL 2034 bond. The 15.10% FGN APR 2017 bond recorded the most notable selloff with yield up 25bps to 9.56%.
• Ahead of the T-bills and bond primary market auctions on Wednesday, we believe market activity will remain tepid in tomorrow’s session as market participants trade cautiously. That said, we expect the tight system liquidity to continue to capped demand across both T-bills and bond markets.\