T-bill yields rise as CBN increases liquidity mop ups 

11 September 2018 : The Central Bank of Nigeria has increased the spate of OMO auctions, conducting three in the past four sessions, compared to four in twenty-one sessions in August. Furthermore, the stop rate on the longest tenor on offer (c.182DTM) has risen from 12.15% at the first auction in that sequence to 12.50% more recently. As a result, yields on T-bills have advanced in recent sessions despite healthy system liquidity (N525 billion at the end of yesterday’s session), rising 28bps yesterday. Analysts note that this uptick in yields is in line with their expectation of rising rates in the fixed income market amid rebounding inflation and cautious sentiment as a result of the elections. 

The CBN began the week with an OMO auction by offering N400 billion across the 73DTM, 136DTM and 199DTM bills. The apex bank eventually sold just N22 billion on the 199DTM bill at a stop rate of 12.50%, with no sale on the other bills. Amid this, system liquidity remained strong at N525 billion and the Interbank call rate advanced 134bps to 4.17%. 

Trading remained bearish in the T-bills space, with yields advancing 28bps on average. Sell pressure remained evident on the short-end of the space with yields on the 73DTM and 80DTM bills notably advancing 84bps and 88bps respectively to settle at 12.90% and 12.64%. Meanwhile, the bond space was more positive amid buying on the shorter-dated maturities. In particular, the yield on the 15.54% FGN FEB 2020 bond moderated 51bps to settle at 14.25%. 

Despite healthy system liquidity, uncertainty over near-term direction of interest rates (following increases in stop rates at recent primary market auctions) is likely to inspire cautious trading, with investors playing at the short-end of the yield curve. 

Consumer Goods stocks weigh market at week open 

The market started the week on a negative note, shedding 125bps on the back of significant sell-offs in the Consumer Goods and Banking sectors. 

The Consumer Goods sector was the biggest loser at week open, shedding 369bps on the back of sell-offs in large-caps NESTLE (- 967bps) and NB (-43bps). Meanwhile, The Banking and Oil and Gas sectors also faltered, losing 125bps and 52bps respectively as a result of losses in ZENITHBANK (-191bps), GUARANTY (-143bps) UBA (- 127bps) and FO (-929bps). Finally, the Industrial Goods sector remained flat on a rare quiet day for the sector. 

Market breadth remained negative with 11 advances and 22 declines. 

Market Outlook 

With investor sentiment remaining weak (measured by low value traded and a negative market breadth), analysts anticipate another negative close for the market today. 

Stock Watch: FO shed 929bps yesterday to close at N19.05, representing a ytd loss of 56%. The stock has shed 17% of its value in the last 11 sessions, hitting a year-low of N19.00 last Tuesday. 

Corporate Disclosures 

The Board of Directors of Diamond Bank Plc has updated the Nigerian Stock Exchange and shareholders that the CBN has debited Diamond Bank’s accounts with CBN for the full amount of the fine levied against it. 

The Board of Direcors of Nigerian Enamelware Plc has notified shareholders of the company’s 58th annual general meeting, which will be held at Transcorp Hilton Hotel, Abuja on Thursday 25 October 2018. 

Reporting for EasyKobo on Tuesday , 11 September 2018 in Lagos, Nigeria

Source: Vetiva Capital Management Limited