Nigeria_Fixed Income Daily: MPC's hawkish stance to pressure yields in days ahead

Market commentary

• Interbank placement rates declined further across all tenors in today’s session (down 24bps on average) – with the Call rate down 16bps to close at 4.8%. At the FX interbank market, the Naira remained unchanged at NGN199.05/USD after recording an intraday low of NGN198.77/USD.

• In anticipation of the decision from the two-day MPC meeting, the fixed income market turned bearish. Yields in the T-bills market advanced 18bps on average, halting four consecutive sessions of gains. The 72DTM (+53bps), 79DTM (+89bps), 100DTM (+74bps) bills recorded the most significant advances closing at 6.23%, 6.21% and 6.27% respectively. Likewise, yields on the traded maturities in the bond market rose 5bps on average, with the most notable rise recorded on the 15.10% FGN APR 2017 bond up 15bps to 9.53%.
• Given that consensus had anticipated “a maintain status quo” stance from the MPC, the committee’s hawkish decisions (MPR up 100bps to 12% and the 250bps hike in CRR to 22.5%) is negative for fixed income securities. Consequently, we foresee an upward shift in the yield curve in tomorrow’s trading session as market participants reprice instruments accordingly. Also, at tomorrow’s T-bills primary market auction (PMA) where CBN will be offering c.N115 billion across the 91DTM, 182DTM and 364DTM bills, we expect stop rates to close higher than the previous auction and secondary market level given the new realities (rate hike).