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The Market Today - 21 December 2017

Sustained appetite for Nigeria’s foreign debt                                                   

Looking at Nigeria’s Eurobond yields, it is impressive that all seven issued Eurobonds (or Diaspora bonds) are trading at significant premiums. Yield on the initial $1.5 billion 15-year Eurobond raised at a coupon rate of 7.875% in February has fallen sharply to 6.398% as at yesterday whilst yield on the $1.5 billion 30-year Eurobond raised at a coupon of 7.625% in November has already moderated to 6.999%. This trend is indicative of the sustained interest in Nigeria’s foreign currency denominated debt amidst a significant improvement in dollar earnings, following a moderate recovery in oil prices and oil production. With the OPEC output agreement expected to support oil prices through the year, and Nigeria’s dollar earnings set to benefit from a full-year of near-optimal oil production, we foresee sustained positive sentiment towards Nigeria’s foreign currency denominated debt. However, even as the Federal Government is likely to capitalize on this by returning to the external debt market, rising interest global rates as a result of the Federal Reserve monetary tightening cycle and inherent pre-election political risk are downsides to this outlook.                                                        

Oil & Gas sector leads NSE ASI rebound                                                               

The Nigerian Stock Exchange shook off bearish sentiment yesterday, with the All Share Index gaining 40bps supported by positive closes across all key sectors. Noting that yesterday’s market recovery was largely driven by a last minute spike, we believe underlying sentiment remains tepid and as such expect a sideways trading pattern in today’s session, albeit with a mildly upbeat bias.                                                               

Stock Watch: CADBURY has lost 20% over the last six sessions. The stock currently trades at ₦13.00, coming off its year-high of ₦16.35 albeit still trading above consensus target price of ₦10.20. The stock has returned 26% Ytd.                                                                                                                           

Tepid session for F.I securities as system liquidity tightens                                                        

The CBN conducted another OMO auction yesterday, offering N300 billion and selling N174 billion across the 92DTM and 260DTM bills at stop rates of 13.05% and 14.85% respectively (effective yields: 13.49% and 16.61%). As system liquidity tightened further, yields in the T-bills market trended in opposite directions as mixed sentiment dominated the trading session. Trading in the bond space was similarly tepid as yields across benchmark bonds advanced a mere 1bp on average. Mild sell pressure was however weighted towards the mid-end of the curve. We foresee a slight uptick in buying momentum in today’s session supported by the expected liquidity inflow from maturing T-bills to the tune of ₦136 billion. However, we note that further mop ups by the CBN could cap demand in the space.