In the past couple of months, “yield moderation” has been the mantra in the market. Though we have already seen some retraction in yields, we believe that there is room for more moderation, recognizing that the Q2-18 Nigerian Treasury Bills (NTB) issuance calendar showed a marked reduction in fiscal paper supply, as a total of N964bn will mature while only N481bn will be reissued. This development was in line with the lower fiscal borrowings plan by the CBN.
In a related development, the Nigerian monetary authority has said it will hold its first MPC meeting for the year on the 3rd and 4th of April, following the concession made by the Senate to screen and confirm President Muhammadu Buhari’s nominees to the CBN, which had been held up since December 2017. Although still tentative, we see more certainty with monetary policy and our view remains consistent with the CBN’s guidance; a rate cut will be spurred primarily by a sub-12% inflation rate.
We expect to see more moderation in average yields in Q2-18, until election risks create volatility in the market, with investors likely to scramble for shorter bills and the yield curve normalizing in H2-18.
United Capital Plc Research