FREE

The Market Today - 16 May 2018

Will the 91-day bill sell at a single digit rate at today’s PMA?                                                    

The stop rate on the 91-day bill at the last Primary Market Auction (PMA) – held on the 2nd of May – settled at 10.00%. The bill with similar maturity opened the year at 12.55% (3rd January), before a surfeit of liquidity – driven by looser Central Bank of Nigeria liquidity management – pushed interest rates lower in the fixed income markets in the first four months of the year. Had that trend continued, we would have expected a sub-10% stop rate on the 91-day bill at today’s auction, which would have been an important psychological marker for interest rates in the country. However, more recent market trend suggests otherwise as tighter liquidity and weaker foreign investor sentiment has pushed yields higher so far in May. Notably, stop rates on the short-dated bill rose slightly at the most recent OMO auction (the first increase in OMO rate in 6 months), pointing towards slightly higher stop rates at today’s PMA.               

Banking sector weighs on the Nigerian bourse                                                 

Following another mixed trading session, the Nigerian Equity market fell a further 12bps yesterday, extending losses to two sessions. Despite losing overall on the day, sentiment in the market yesterday was largely mixed – as indicated by mixed sector closes. In the absence of any market catalysts, we foresee mixed sentiment persisting in today’s session.

Stock Watch: CHAMPION has shed 17% over the last six sessions. The stock trades at a year-low of ₦2.01 and has declined 3% ytd.                                                              

Bulls dominate fixed income market                                                    

In the absence of an OMO auction yesterday, Interbank call rate moderated to 15.33% from 150%. Bucking the recent trend, sentiment in the T-bills space turned largely bullish yesterday, with demand weighted at the long end of the space. Overall, yields declined 73bps on average. Trading in the bond market was similarly positive with buying spread across the space, driving yields 5bps lower across benchmark bonds. Notably, yields on the 16.39% FGN JAN 2022 and 12.40% FGN MAR 2036 bonds declined 14bps and 9bps to 13.30% and 13.24% respectively. We expect a cautious start to the market as investors await the result of today’s T-bill Primary Market Auction, where stop rates are widely expected to be higher than rates at the last auction.