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The Market Today - 28 September 2017

FI yields head south as auctions signal lower rates                                                         

Yields in the fixed income market have trended south in the past few weeks, reflected in lower stop rates at recent Primary Market Auctions (PMA) for T-bills and Federal Government Bonds. Stop rates on the 364DTM at the PMA dropped from 18.52% on August 30th to 17.00% on September 20th. Moreover, this is seen in lower closing yields at the monthly bond auction held yesterday, even amidst elevated demand levels – the DMO sold N244 billion from an initial N135 billion offer, with total subscription registering at N394 billion. As this sentiment has filtered into the secondary market, lower yield expectations have driven aggressive buying across the space, driving down yields in the secondary market towards auction levels. Despite the “HOLD” decision at the Monetary Policy Committee, we expect market participants to remain sensitive to continued signals from the Central Bank of Nigeria that it is looking to reduce market interest rates and ease government borrowing costs.                                                               

Nigerian Bourse turns positive at mid-week                                                      

The Nigerian Equity Market recorded its first positive closing for the week – NSE ASI up 44bps. Despite the positive market close, we note that overall sentiment remains tepid, reflected in negative closes across key sectors and narrowly positive market breadth. However, with modest demand on select banking stocks at session close, we anticipate a positive start to the trading day.                                                      

Stock Watch: NB has declined 322bps in four consecutive sessions. The stock currently trades at ₦165.50, below consensus target price of ₦139.62, and has returned 12% Ytd.                                                   

Bulls dominate Fixed Income market amidst Bond Auction                                                        

At the monthly bond auction, the Debt Management Office offered ₦135 billion across the 5-year, 10-year and 20-year bonds. The DMO eventually sold ₦35 billion, ₦77 billion, and ₦132 billion on the 5-year, 10-year, and 20-year tenors at stop rates of 15.9899%, 15.9000% and 15.9200% respectively (below August levels of 16.8000%, 16.8000% and 16.9000%). Trading in the bond market turned bullish yesterday with demand tilted towards the short end of the space. Meanwhile, the T-bills market remained mixed albeit with a slightly bearish bias as yields advanced 2bps on average. With stop rates at yesterday’s bond auction coming in slightly below secondary market levels, we anticipate further buying in the bond space tomorrow. Whilst we expect this buying sentiment to filter through to T-bills, it would likely be capped by any CBN liquidity mop up.