DMO Cuts FGN Bond Auction Rates by 84 Basis Points As MPR Cut Still Shakes Fixed Income Markets

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KEY INDICATOR                                        

Indicator Value Commentary
Inflation 13.22% As at August 2020. A 40bps increase from 12.82% recorded in July 2020
MPR 11.50% 100bps cut by MPC as at September 22, 2020.
External Reserves $35.80bp As at Sep. 21, 2020. A c.0.02% increase from $35.81bp on Sep. 17, 2020
Brent Crude $42.10pb As at Sep. 23, 2020. A c.0.91% increase from $41.72pb on Sep. 22, 2020


FGN Bonds

It was an exciting trade session to say the least, as yields in the Bonds Market opened much lower ahead of the FGN Bond auction. Still reeling from the 100bps cut in MPR by the MPC yesterday, the outlook for a strong auction gained steam as market participants revised their stop rate expectations lower. In the secondary market, quotes opened wide as the market struggled to find a new level to price bonds for the opening trading hour. Bonds eventually settled c.35bps lower on the average across the benchmark curve, with the most active bond the 2050s which traded comfortably at 9.70% for most of the session.

At the primary auction, the DMO shocked the markets by cutting down its stop rates by c.84bps on the average across the 4 tenors on offer following heavy demand seen from mostly local institutional investors. The total bid-to-cover ratio was 2.48X with demand skewed to the longest maturity (2050s). The DMO however opted to sell the most volumes on the shortest dated maturity (2026s) where 66.97Bn was sold (168% higher than the offer amount).

We expect another volatile session opening tomorrow as the market digests the auction results overnight. Offers are expected to jump lower opening tomorrow, as demand from the huge volume of lost bids flows into the secondary market.

Primary Market Auction Result
FGN Bonds  – 23 Sept. 2020
Maturity Rate (%) Offer (₦’bn) Sub (₦’bn) Sale (₦’bn) Previous Rate (%) Changes
Jan-26 6.00 25.00 83.83 66.97 6.70 (0.70)
Mar-35 8.52 40.00 71.40 25.43 9.35 (0.83)
Jul-45 8.90 40.00 41.06 6.81 9.75 (0.85)
Mar-50 8.94 40.00 163.93 4.60 9.90 (0.96)
Benchmark FGN Bonds
Description Bid (%) Offer (%) Day Change (%)
16.39 27-Jan-22 4.00 3.10 (1.00)
12.75 27-Apr-23 4.55 3.50 (0.45)
14.20 14-Mar-24 4.55 3.40 (0.45)
13.53 23-Mar-25 5.15 4.25 (0.40)
12.50 22-Jan-26 6.25 5.85 (0.35)
16.29 17-Mar-27 7.70 6.80 0.00
13.98 23-Feb-28 7.80 7.00 (0.10)
14.55 26-Apr-29 8.05 7.50 (0.13)
12.15 18-Jul-34 9.50 9.00 (0.30)
12.40 18-Mar-36 9.50 9.05 (0.40)
16.2499 18-Apr-37 9.55 9.05 (0.35)
14.80 26-Apr-49 9.80 9.55 (0.18)
Treasury Bills
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Expanded system liquidity in collaboration with lower deposit rates at the CBN from the MPC’s decision to revise the asymmetric corridor to +100/-700 fuelled another bullish rally in the OMO markets. Local banks continued to hunt for any available yields on OMO bills, with offers at the short-dated papers shown below the 1.50% mark while the mid- to long-dated papers were offered at around 2.00%. Rates dropped again across most traded securities, with the benchmark OMO curve dropping lower by c.133bps on the average.

Read Also:  FSDH RESEARCH WEEKLY INSIGHTS: Moving Towards Debt Sustainability

NTB Bills also kept with the theme, with rates on the benchmark curve dropping by c.50bps on the average with retail volumes traded on some select maturities.

We expect the market to remain bullish supported by current system liquidity levels. These levels present significant upside for offshore investors to offload current stock ahead of the expected OMO auction tomorrow but we expect the markets to hold its breath to see where the CBN will close auction rates.

Benchmark OMO Bills
Description Bid (%) Offer (%) Day Change (%)
NGOMO 10/1/2020 2.00 0.01 (1.00)
NGOMO 11/03/2020 2.00 0.01 (1.00)
NGOMO 12/01/2020 2.50 0.01 (0.50)
NGOMO 01/05/2021 2.50 0.01 (1.50)
NGOMO 02/02/2021 3.00 0.01 (1.00)
NGOMO 03/02/21 3.00 0.01 (2.00)
NGOMO 05/11/21 3.00 0.01 (2.00)
NGOMO 06/08/21 3.50 0.01 (1.50)
NGOMO 08/10/21 3.50 0.01 (1.50)

Benchmark NTBills

Description Bid (%) Offer (%) Day Change (%)
NIGTB 10/1/2020 2.00 0.01 0.00
NIGTB 11/12/2020 2.00 0.01 0.00
NIGTB 12/31/2020 2.50 0.01 0.50
NIGTB 01/14/2021 2.50 0.01 (0.50)
NIGTB 02/11/2021 2.50 0.01 (0.50)
NIGTB 04/29/2021 2.50 0.01 (1.50)
NIGTB 05/13/21 3.00 0.01 (1.00)
NIGTB 06/10/21 3.00 0.01 (1.00)
NIGTB 07/01/21 3.50 0.01 (0.50)
NIGTB 08/26/21 3.50 0.01 (0.50)
Money Markets
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Interbank rates remained low, supported by excess system liquidity levels. The markets opened c.N505BN, 4.91% lower than the previous session, as OBB and OVN rates remained stable to close at 1.00% and 1.75% for OBB and OVN rates respectively.

With OMO maturities of c.N300BN expected to hit the interbank system tomorrow, we expect rates to remain stable despite a high chance of an OMO auction floated by the CBN.

Money Market Rates

  Current (%) Previous (%)
Open Buy Back (OBB) 1.00 1.00
Overnight (O/N) 1.75 1.75
FX Market

Trading activity in the interbank I&E market picked up today, with traded volumes up by 135% ($69.22mio traded). Bids ranged within a tighter band of N7.84k, the tightest seen in the past two weeks. The closing rate depreciated by N0.20k to close at N386.00/$.

FX Market
Current (N/$) Previous ( N/$)
CBN Spot 379.00 379.00
CBN SMIS 380.69 380.69
I&E FX Window 386.00 385.80
Cash Market 465.00 465.00
Transfer Market 480.00 480.00
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The trading day remained fairly active with SSA Eurobonds with the sell-offs continuing for another consecutive session. Growing fears for a second wave of COVID-related lockdown in some developed countries continued to fuel headwinds in the SSA papers, with the NGERIA Sovereign papers among the most active names traded. Yields close the session c.8bps lower on the average across the sovereign yield curve.

DMO Cuts FGN Bond Auction Rates by 84 Basis Points As MPR Cut Still Shakes Fixed Income Markets


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DMO Cuts FGN Bond Auction Rates by 84 Basis Points As MPR Cut Still Shakes Fixed Income Markets - Brand SpurDMO Cuts FGN Bond Auction Rates by 84 Basis Points As MPR Cut Still Shakes Fixed Income Markets - Brand Spur

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DMO Cuts FGN Bond Auction Rates by 84 Basis Points As MPR Cut Still Shakes Fixed Income Markets - Brand SpurDMO Cuts FGN Bond Auction Rates by 84 Basis Points As MPR Cut Still Shakes Fixed Income Markets - Brand Spur

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