The Market Today - 28 November 2018

Eurobond yields rise as investors seek higher risk premium                                                      

Nigeria’s external debt servicing costs have risen steeply in recent months amid U.S. monetary tightening and a risk-off sentiment towards emerging & frontier markets. The Federal Government raised $1 billion in a 12-year Eurobond at a coupon of 8.75% earlier this month, much higher than the 7.14% coupon on the $1.25 billion 12-year Eurobond raised in February 2018. This is amid investor demand for a higher premium above the U.S. benchmark 10-year treasury bond, whose yield has risen from 2.41% at year-open to 3.06% yesterday. Given Nigeria’s focus on rebalancing its debt portfolio in favour of long-term external debt, we note the dangers of rising global interest rates, even as the Federal Government is already spending 60% of its revenues on servicing its debt. With the U.S. expected to increase interest rates by a further 75bps in 2019 and the European Central Bank stopping its quantitative easing program at the end of 2018, the trend of global interest rates remains upward, and we expect this to increase the cost of credit for Nigeria in the external debt market.                                                      

Selloffs intensify on Nigerian Bourse – ASI down 18.5% ytd                                                       

The Bourse recorded extended the losing streak in today’s session, with stronger selling across key sectors driving the All-Share Index to a 114bps decline.   Market breadth was negative with 13 advances and 22 declines. Amid the continued slide in stock prices and as major names trade at recent lows, we foresee possibility of more notable bargain hunting in the coming sessions. That said, we expect trading in today’s session to remain downbeat.                                                     

Stock Watch: After seven quiet sessions, SEPLAT recorded a 961bps decline yesterday to settle at ₦590.00. The stock is currently trading at its year-low and has lost 5.78% ytd (Oil & Gas Sector: -17.09%).      

Tightened liquidity curbs buying ahead of T-bills PMA                                                                 

On the back of constrained market liquidity, the interbank call rate advanced 112bps to close at 16.29%. The CBN is expected to conduct a T-bills Primary Market Auction today where over ₦150 billion will be offered across the 91DTM, 182DTM and 364DTM bills. We expect rates at the PMA to come in line with previous auction rates. Amid this, and given weak market liquidity, we anticipate tepid trading activity in the fixed income secondary market today.