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The Market Today - 19 April 2018

Infrequent CBN Mop-ups drive yield moderation                                                           

With the Central Bank of Nigeria (CBN) conducting OMO auctions less frequently in recent weeks (only 9 auctions in 33 sessions since the start of March vs. 23 auctions in prior 33 sessions), system liquidity has improved significantly, evidenced by the drop in average Call rate from 14.0% in March to 2.9% so far this month. Spurred by this, trading in the fixed income market has been markedly bullish, with significant yield moderation seen in recent weeks. Yields on benchmark FGN bonds averaged 12.9% at yesterday’s close, compared to 13.7% at the end of March. Similarly, average yields on T-Bills has moderated by 240bps on average in the last 2 months, down to 12.3% as at the close of market yesterday,. This downward trend in yields is likely to continue as the CBN continues to signal its desire for lower market interest rates by allowing buoyant system liquidity. Though we expect the apex bank to periodically mop-up after large liquidity inflows, we foresee lower stop rates at these OMO auctions, which should further support yield moderation.                                                      

Positive performance short-lived as NSE dips slightly                                                   

With only one major sector on the exchange recording a positive close, the Nigerian bourse shed 4bps on the day. Despite consistently positive market breadth, we note the red closes in key sectors and pressure on bellwether stocks and foresee another choppy session with a bearish tilt.

Stock Watch: GUARANTY released its Q1’18 results after yesterday’s market close, reporting top line of ₦81 billion (-4% y/y) and bottom line of ₦45 billion (+8% y/y). This came in behind and ahead of Vetiva forecasts of ₦108 billion and ₦43 billion respectively. The stock, which gained 57bps in yesterday’s session, currently trades at a price of ₦44.35 and has returned 9% ytd.                                                     

Lower stop rates at PMA as yields continue south                                                          

The CBN conducted a T-Bills Primary Market Auction yesterday, offering and selling ₦58 billion across the 91DTM, 182DTM and 364DTM bills at respective stop rates of 10.90%, 12.00% and 12.08% (effective yields: 11.20%, 12.76% and 13.73%) respectively, all lower than rates at the last PMA (11.75%, 12.70% and 13.04%). Trading in the secondary market remained bullish with buying interest spread across the curve. The bond market was likewise bullish albeit with notable yield upticks on shorter-dated instruments. We foresee further buying in today’s session, steered by healthy system liquidity and lower stop rates at yesterday’s PMA. We further note that a ₦276 billion OMO maturity is expected today, making it likely that the CBN will mop up liquidity and slightly dampen buying.