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The Market Today - 05 October2017

DMO releases fourth quarter bond calendar                                              

In a bid to finance the ₦2.32 trillion deficit for its 2017 budget, the Federal Government of Nigeria would be raising between ₦270 - ₦330 billion worth of bonds in Q4’17. In line with the recent trend in the fixed income market and at the September bond auction, we expect stop rates at these auctions will come in lower, hovering around the 15.9% - 16.0% region. As at September, the FG had borrowed ₦1.255 trillion from the domestic bond market, only slightly below the budgeted ₦1.3 trillion figure for FY’17. As such, we expect the FG will overshoot this target by Q4’17. We continue to attribute this to the underperformance in actual government revenue so far this year and also the sluggish take off of external financing for the FY’17 budget. That said, we note that the government has continued to increase efforts to ramp up foreign borrowing – in line with its plan to diversify its debt portfolio towards long-term external debt. Notably, the FG has stated its plans to raise $2.5 billion in Eurobonds to fund its 2017 budget is underway. We are optimistic that successful funding efforts would aid 2017 budget execution and further spur Nigeria’s economic recovery.                                          

NSE ASI notches 15bps as mixed trading persists                                    

Despite sustained varied sentiment on the Nigerian bourse, the NSE ASI gained 15bps yesterday. However, we note that sentiment remained tepid as value traded declined to ₦2.7 billion from ₦5.7 billion on Tuesday. Excluding the sharp movements in the ASI intraday, market direction was relatively flat with a mildly positive tilt. We believe this underscores the persistently mixed sentiment in the market, and expect it to continue today.                                    

Stock Watch: ETI has declined 339bps in four consecutive sessions. The stock currently trades at ₦17.10, above consensus target price of ₦13.83 and has returned 66% ytd.                                               

Bullish sentiment prevails in Fixed Income market                                             

The Central Bank of Nigeria conducted a Primary Market Auction yesterday, offering and selling ₦130.39 billion across the 91DTM, 182DTM and 364DTM bills at 13.25%, 15.50% and 15.73% respectively (effective yield: 13.70%, 16.80% and 18.65%) all lower than yields at the last PMA. With investors anticipating the lower stop rates at the PMA, bulls prevailed on the T-bills market yesterday with strong buying across the curve. Likewise the bond market stayed bullish as yields on benchmark bonds declined 60bps on average. We expect the CBN to continue with its rigorous liquidity mop-ups, through OMO auctions, even as ₦130.39 billion worth of OMO bills is scheduled to mature today. Notwithstanding, we foresee increased buying sentiment in the fixed income secondary market as yields converge towards auction levels.