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Nigeria_Fixed Income: Markets bearish ahead of bond auction result

Market commentary

• Interbank placement rates advanced further today, with the Call rate up 29bps to 5.21%. At the FX interbank market, the Naira appreciated 2 kobo to NGN199.05/USD, retracing from an intraday high of NGN198.00/USD.

• Following the higher stop rate recorded at yesterday’s OMO auction amidst expectations of a possible rate hike, yields rose across all traded maturities in the T-bills market - up 36bps on average. The most notable advancement in yields were recorded on the 29DTM (+86bps), 50DTM (+70bps), and 239DTM (+88bps) bills, closing at 4.33%, 5.05%, and 10.68% respectively. Similarly, bearish sentiment intensified in the bond market as traders reacted to speculations around higher stop rates ahead of the release of the bond auction result. Consequently, yields advanced 35bps on average. Particularly, yields on the 15.54 FGN FEB 2020 and 14.20% FGN MAR 2024 bonds rose 35bps and 44bps to 13.52% and 13.87% respectively.

• Although the DMO offered N105 billion across the 5-year, 10-year, and 20-year bonds, N52.5 billion worth of the maturities were eventually sold at stop rates of 13.249%, 13.743% and 13.900% respectively. With an average 44% oversubscription across all the maturities on offer, we strongly believe that the DMO’s decision to cut sale at 50% of the volume on offer was in a bid to keep rates low. Whilst we expect the c.N32 billion OMO inflows to support demand in tomorrow’s trading session (on the short end), we believe bearish sentiment will persist in the fixed income market as economic fundamentals continue to point towards an upward shift in yield curve amidst expectations of higher inflation figures and further rate hikes.