08 March 2019

OMO Issuances touch new highs. Coming into the year analysts projected the likelihood of a tight monetary policy in the early part of 2018 hinged on CBN’s quest to defend the naira amid high concentration of fixed income maturities and lower crude oil prices. As expected, the CBN continued its liquidity curbing tactics in February by net issuing N1.09 trillion, its highest monthly OMO sale so far. In addition, the CBN kept OMO rates elevated for most part of the month before turning dovish (1-year OMO: -70bps to 14.3%) at its last auction in February. For clarity, following the bullish run at secondary market driven by foreign investors interest and pent up market liquidity from OMO maturities (N1.87 trillion) and FAAC inflows (N660 billion) which cascaded into higher subscription levels (Subscription levels: N975 billion), investors repriced OMO bids lower with bids on the one-year OMO as low as 13.9%. This alongside lesser hurt to currency emanating from lower fixed income maturity profile in subsequent months informed CBN’s decision to cut its OMO rates (1-year OMO bill: -70bps MoM to 14.3%).

NTB yields tremble further. In line with its NTB issuance calendar for Q1 19, FG rolled over the N268.5 billion staged to mature in February, bucking two consecutive months of net repayment. Average stop rates at the February bond auction dipped 35bps MoM to 12.66%. The lower stop rates at the February NTB auction reflects apathy for short dated debts despite significantly higher subscription levels. To buttress, despite offering N268.5 billion at the February auction, subscription levels touched a thirteen-month high of N1.2 trillion.

Despite the higher demand, FG rolled over its maturity for the month as planned and reduce its stop rate. Similarly, at the secondary market, average NTB yields plunge 155bps MoM to 13.06%. In terms of drivers, while this was driven in part by the lower stop rates at the auction, the plunge in yields was mainly driven by the investors’ appetite for Nigeria’s short dated debt following the successful conduct of the elections in February. For clarity, although NTB yields dipped 155bps MoM, it plunged 115bps between 26th and 28th of February (post announcement of election result).

Bond yields dip: At the long end, FG ramped up borrowings as it issued N150 billion worth of FGN bonds in February (vs N117 billion in January). Despite higher paper supply, average marginal clearing rates dipped 52bps to 14.75%. The lower stop rate at the auction reflects the confluence of higher demand as well as investors repricing following lower yields at the secondary market. On demand, the auction was largely oversubscribed with bid to cover of 1.6x, leaving FG with favorable bargaining terms. In addition, following the bullish run in bond yields which in analyst's view largely reflects foreign investors interest in Nigeria’s bond market, investors repriced their bids lower with bids on the 10-year going as low as 13%. Furthermore, akin to the NTB market, post announcement of Nigeria’s presidential election, average bond yields dipped 69bps taking overall secondary market bond yields lower by 108bps MoM to 13.98%.

Reporting for EasyKobo on Friday , 08 March 2019 in Lagos, Nigeria

Source: ARM Securities Limited

NOTE - THIS ARTICLE PUBLICATION IS COPYRIGHT OF ARM SECURITIES LIMITED AND NOT TO BE REPRODUCED OR REPRINTED IN ANY FORM WITHOUT THE EXPRESS PERMISSION OF ARM SECURITIES LIMITED.