Investors Shun TBs for Stocks

Activities in the secondary market arm of the treasury bills market were low all through last week as investors appeared to be taking refuge in the stock market which has continued to display stellar performance since this year.

For instance, a report by Afrinvest Securities Limited showed that at opening of trading last Monday, activities remained minimal with sell-offs seen at the shorter end of the curve and rates closing the first session of the week at an average of 13.9 per cent (up 5 basis points).
The market maintained the upward trend till week end, closing three basis points higher on Tuesday (13.9 per cent), 10 basis points on Wednesday (14 per cent), 10 basis pointson Thursday (14.1 per cent) and later closed Friday at 14.1per cent, implying a 24 basis points increase week-on-week.

In the primary market, the CBN offered N11.7 billion, N33.49billion and N68.2 billion of the 91-day, 182-day and 364-day instruments.
As expected, subscription levels soared with 2.1 times (N24.3 billion) for the 91-day, 1.5 times (N49.9 billion) for the 182-day and a whopping 6.8 times (N465.7 billion) for the 364-day instrument. Notwithstanding, allotment levels remained similar to offer amounts save for the 364-day instrument whereby allotment was N115.8 billion at stop rates of 12.5 per cent, 13.9 per cent and 14.3 per cent for each of these instruments.

“In the coming week, we expect activities to pick up in the secondary market as unmet demand from the primary market moved over to that space.
“Also, we expect an open market operations (OMO) maturity of N64.3 billion to impact on liquidity levels while the CBN continues with its unpredictable OMO mop ups,” Afrinvest analysts stated.
Meanwhile, money market rates – Open Buy Back (OBB) and the overnight (OVN) rates – trended lower on 3 of 5 sessions. At the start of the week, OBB and OVN rates opened in double digits as the CBN conducted OMO auction and SMIS (Secondary Market Intervention Sales) worth N80billion and US$100 million respectively.
Thus, rates on Monday rose 1.9 percentage points apiece to 10.8 per cent and 11.5 per cent from nine per cent and 9.5per cent respective close on Friday.
However, in subsequent sessions, money market rates trended lower: Tuesday (7.5% and 8.5% respectively), Wednesday (6.2% and 6.5% respectively) despite treasury bills auction of N229.9billion on Thursday (5.3% and 5.7% respectively) and OMO sales worth N150 billion conducted same day. Rates closed the week higher at 16.7per cent and 17.7per cent.

Bonds Market
Contrary to the treasury bills market, activities in the local bonds market was largely positive.
The week opened with sell-offs across instruments, save for the FGN Oct-2019 (down 3bps); average bond yield closed Monday seven basis points higher at 13.4per cent.
On Tuesday however, sentiment turned positive as buying interest mostly shifted towards short and longer term instruments while on subsequent sessions buying activities picked up on medium term instruments. Consequently, average bond yield closed lower on Tuesday (down 5 basis points to 13.4per cent), Wednesday (down four basis points to 13.3per cent), Thursday (down three basis points to 13.3per cent) and 13.3per cent on Friday, indicating a 0.1 per cent decline week-on-week.
Meanwhile, the DMO will be conducting its first FGN Bond auction for the year this week.
The JULY 2021 and MAR 2027 instruments will be reopened with offer amounts ranging from N45 billion –N55 billion and N55 billion – N65 billion respectively.
From Afrinvest’s analysis, given the moderating yield environment and in line with current realities, they projected a slightly lower issue yield estimated at 13.17 per cent and 13.19 per cent for JULY 2021 and MAR 2027 relative to the Dec-2017 Auction issue yield of 13.19 per cent and 13.21 per cent respectively.
On the other hand, after several weeks of positive performance, sentiment was bearish on Sub-Saharan Sovereign Eurobonds last week, as yields closed the week higher with only 8 of 22 instruments, recording price appreciations.
Notwithstanding, Nigerian Eurobonds witnessed the most buying interest with yields falling on four of six instruments contrary to other countries; average yield rose 17 basis points, five basis points, three basis points, seven basis points, 14 basis points and eight basis points on the Ghanaian, Gabonese, Ivory Coast, Kenyan, Senegalese and South African instruments. Yields across the Zambian Eurobonds closed flat. The recently issued NIGERIA 2047 and the SOUTH AFRICA 2041 are the best performing YTD, with a return of 1.2per cent apiece.

“It was a positive week for Nigerian corporate Eurobonds as there was noticeable buying interest across board. As a result, across instruments we track, yields closed lower, falling faster on the FBNH 2021 (down 62 basis points to 8%) and DIAMOND 2019 (down 32 basis points to 8.8%) week-on-week.
“However, yields on the FIDELITY 2018 and FBNH 2020 rose 10 basis points and two basis points week-on-week to close at 6.9 per cent and 8.3 per cent respectively.
“Year-to-date, all corporates remain in good standing with the FBNH 2021 (+2.3%) up the most,” the report added.

Forex Market
Since the turn of the year, the central bank has sustained its intervention in the forex market, in its bid to maintain the current stability and liquidity in the market.
Further bolstered by the sustained rally in oil prices which touched a year high of US$70.26/b last Monday as well the improvement in external reserves which is presently about $40.5 billion, the CBN offered US$100 million via Special Wholesale Interventions for Spot and Forward sales at the start of the week. Against this backdrop, the CBN Spot rate opened the week at N305.80/$ (similar to the prior Friday) but appreciated five kobo by mid-week, before eventually closing the week at N305.70/$1. This translated to a 10 koboweek-on-week appreciation.
In the parallel market, the naira traded flat at N365/$1 all week.
Similarly, at the Investors’ and Exporters’ (I&E) segment, the domestic currency appreciated as the NAFEX rate improved 10 kobo week-on-week to settle at N360.10/$ on Friday.
Analysis of daily trading activity showed the spread between the daily high and low contracted all week, from N4.85/US$1.00 on Monday to N3.50/US$1.00 on Thursday.
Total turnover at the segment settled at US$1.392 billion, lower than the US$1.5 billion recorded in the prior week.
At the FMDQ OTC Futures market, subscription marginally increased 1.7 per cent (US$56.3 million) week-on-week as total value of contracts settled at US$3.4 billion from US$3.3billion in the preceding week. The improvement in activity was largely due to additional subscription to the NG/US NOV 28 and NGUS DEC 26 2018 instruments which increased US$5 million and US$51.3 million week-on-weekrespectively. The NG/US APR 25 2018 contract remained the most subscribed with total subscription of US$656.9 million.
“In the coming week, we expect rates at the various segments of the market to remain at similar levels as the central bankcontinues its liquidity injection into the forex market,” Afrinvest added.

Inflation
For the 11th consecutive month, the Consumer Price Index (CPI), which measures inflation, ended 2017 at 15.37 per cent (year-on-year) in the month of December.
This was 0.53 percentage points lower than the 15.90 per cent recorded in November – the 11th consecutive slowdown in the inflation rate since January 2017.
However, increases were recorded in all Classification of Individual Consumption by Purpose (COICOP) divisions that yield the headline index.
In the latest inflation figures released last week, the National Bureau of Statistics (NBS) noted that on-a-month-on-month basis, the headline index increased by 0.59 per cent in December 2017, 0.19 percentage points higher than the 0.78 per cent recorded in November.
The percentage change in the average composite CPI for the 12-month period ending in December 2017 over the average of the CPI for the previous 12-month period was 16.50 per cent, indicating a 0.26 percentage point decrease from 16.76 per cent recorded in November.
Urban inflation rose by 15.78 per cent (year-on-year) in December, from 16.27 per cent recorded in November, while the rural inflation rate eased to 15.02 per cent in December from 15.59 per cent in November.

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