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The Market Today - 09 February 2018

$2.5 billion Eurobond will rebalance debt portfolio                                              

The Debt Management Office (DMO) has reiterated that the proposed $2.5 billion Eurobond sale (outstanding portion of the $5.5 billion approved at the end of 2017) would be used to refinance current domestic debts, and reflected a rebalancing of the country’s debt portfolio as opposed to an increase in debt. We note that the Federal Government has expressed its desire to rebalance its portfolio away from short-term domestic debt to longer term external debt in order to ease its immediate debt servicing costs and reduce private sector crowding out in the domestic debt market. As such, the DMO aims to use the $2.5 billion raised to redeem ₦762.5bn ($2.5bn) worth of Treasury bills in a bid to lower its borrowing costs. We recognize that relatively lower rates on Eurobond issues are attractive for Nigeria’s financing efforts but highlight monetary tightening in the United States and possible currency devaluation as risks to this perspective.                                              

Equities continue southwards, ASI down 49bps                                       

Though losses moderated on the exchange, bearish sentiment continued to dominate the Nigerian equities market with the NSE ASI moderating 49bps amidst mixed closes across key sectors. We foresee further mixed trading at week close albeit with a mild bearish bias.  However, we do not rule out the possibility of a market reversal as investors swoop in to take advantage of beaten down prices.     

Stock Watch: WEMABANK has lost 18% over the last four sessions. The stock currently trades at ₦1.23 and has returned 137% ytd.                                         

Liquidity inflow provides brief respite for bond yields                                          

Following yesterday’s ₦68 billion T-bills maturity, the CBN conducted an OMO auction, offering ₦100 billion and eventually selling ₦23 billion across the 98DTM and 252DTM bills at respective stop rates of 12.60% and 14.40% (effective yields: 13.04% and 15.99%). Meanwhile, sell pressure persisted in the T-bills market, with yields advancing 16bps on average across the space. However, sentiment in the bond market turned yesterday as the market opened to an initial surge in demand. Whilst we note the improvement in sentiment in the bond market yesterday, we believe liquidity constraints and a likely CBN mop up would dampen buying in the fixed income market at week close.