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The Market Today - 5 July 2017

DMO offers ₦135 billion for July                                         

The Debt Management Office (DMO) recently released the July Bond Offer Circular, offering ₦135 billion across the 5-, 10-, and 20-year bonds. We recall that the DMO offered ₦140 billion at the June auction, eventually selling ₦100 billion at lower stop rates compared to previous months (20-year bond stop rate: 16.1965% vs. 16.992% in January). The agency also released the Q3’17 Bond Offer Calendar, showing that it intends to sell between ₦120 billion and ₦150 billion across the benchmark bonds at both the August and September auctions. Total year-to-date domestic bond sales amount to ₦850 billion, with 63% of this coming in Q1’17 amidst strong interest from domestic and foreign investors (Q1 sales 45% higher than amount offered). We note that demand at primary market auctions (PMA) has cooled in recent months (Q2’17 subscription level of 1.1x vs. Q1’17: 2.1x) on the back of increased liquidity pressures and less attractive rates at the PMA. The Federal Government has set a ₦1.3 trillion domestic borrowing target to fund the 2017 budget and lower oil prices in recent months (June average: $47.55 per bbl vs. $54.61 per bbl in Q1) puts more pressure on borrowing efforts to finance 2017 fiscal activities.                                    

ASI down 110bps as Nigerian Bourse remains negative

The Nigerian equity market continued its downtrend yesterday as the ASI lost 110bps amidst weak value traded (₦1.7 billion vs. 30-day average: ₦5.0 billion).  With the persistent downward market slide, negative market breadth and reduced trading activity, we expect another day of negative trading as investors approach the market with greater caution.                                       

Stock Watch: Following the release of its FY’17 results, (PAT up 42% y/y), HONYFLOUR has remained among top gainers for two sessions, advancing 20% to close at ₦2.12. The stock has returned 63% ytd.

Fixed Income market turns mixed ahead of PMA                                      

Amidst the tight liquidity, the T-bills market traded mixed yesterday, albeit with a slightly bearish bias. The bond market was similarly mixed with yields moving in opposite directions. The CBN would be conducting a Primary Market Auction in the T-bills space today (₦177 billion to be offered across 91DTM, 182DTM and 364DTM bills). Amidst this, we foresee more mixed trading in the T-bills space as liquidity pressures persist.