Debt Instruments Trade Flattish as Liquidity Moves Equities Rally
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Debt Instruments Trade Flattish as Liquidity Moves Equities Rally

The fixed income market instruments traded largely flattish as against the ongoing rally in the equities market on account of robust liquidity and investors’ high patronage.

Interbank money market rates remained stuck at low single-digits today, as funding pressures remained benign.

Notably, financial system liquidity stayed robust, opening at N405 billion, albeit lower than N457 billion on Wednesday.

Consequently, the Open Buy Back (OBB) and Overnight (OVN) rates eased slightly by 21 basis points (bps) and 30bps to 0.43% and 0.75% respectively.

“We expect funding pressures to remain subdued tomorrow, barring a major cash reserve requirement debit by the Central Bank of Nigeria”, Chapel Hill Denham said.

Surprisingly, investors’ reaction to the bullish Nigerian Treasury Bill (NTB) auction on Wednesday was broadly benign, as bond yields declined only marginally by 1bp across benchmark tenors to an average of 4.23%.

Chapel Hill Denham said this was mainly driven by short term bonds (-4bps to 1.59%).

Meanwhile duration apathy persisted as intermediate and long term bonds closed flat at an average of 4.41% and 6.10% respectively.

Similarly, at the front end of the curve, discount rates on benchmark NTBs eased only marginally by an average of 1bp to 0.48%.

However, open market operations (OMO) curve was inched higher slightly by 1bp to 0.23%.

The mild reaction to the auction result was surprising, as investors’ appetite remained in favour of equities over overvalued bonds.

Analysts said it would appear that traders are waiting for the bond auction holding next week to gauge the Debt Management Office aggression before taking a directional view of the market.

The auction circular was published earlier today, which showed that the DMO plans to raise up to N80bn, split equally at N40bn between the 15-year MAR 2035 reopening and 25Y JUL 2045 reopening.

The previous auction cleared at 4.97% and 6.00% respectively.

“We expect the auction next week to clear at lower yields, given the supportive liquidity backdrop”, Chapel Hill Denham stated.

In the equities market, supportive system liquidity had midwife an equity market rally in Nigeria over the last six straight sessions, with the all share index cumulatively notching an 8.0% gain over the period.

The rally took a new turn today as the market returned 6.23%, a development that triggered a 30-minute market-wide circuit breaker when the market first hit the 5.00% ceiling at 12: 55p.m.

The market reopened at 1:25 p.m. with a 10-minute intraday auction session, before resuming continuous trading till the close of the day at 2:30 p.m.

It is worth noting that today’s return is the largest single-day return since April 15, 2020, and also the second-highest daily return since the data became available.

Yesterday’s bullish NTB auction results, where average stop rates dipped by another 45bps to a new low of 0.16%, must have fueled investors’ appetite for riskier assets in our view, analysts said.

Chapel Hill Denham said, “For us, there are clear indications that the low yield environments will persist and, at such, we see further legroom for a sustained equity market rally in the short to medium term”.

In terms of the drivers of today’s gain, Telecommunications, cement producers, and tier 1 banking stocks were the key market movers based on attribution analysis.

Against the foregoing, the year-to-date return grew further to 31.67%, thereby looking set to upstage the 42.3% return recorded in 2017, when investors’ welcomed the creation of the novel I&E FX window which effectively ended Nigeria’s FX crisis at the time.

Similarly, the market capitalisation grew to N18.468tn.

At the close of the market, several stocks hit the 10.0% return limit, with Cadbury Nigeria Plc (+10.00% to N11.00), leading the packs, followed by C&I Leasing Plc (+10.00% to N4.51), and Julius Berger Nigeria Plc (+10.00% to N19.25).

Meanwhile, Global Spectrum Energy Services Plc (-9.89% to N4.19), Eterna Plc (-9.86% to N4.57), and May & Baker Nigeria Plc (-9.72% to N3.25) were today’s top losers.

In line with the pattern observed in the last three trading sessions, today’s positive performance was broad-based, with 5 of 5 of Chapel Hill Denham’s coverage indices closing in the green.

Specifically, the NSE banking, NSE consumer, NSE industrial goods, NSE oil & gas, and NSE insurance indices closed positive.

The sectors gained 609bps, 581bps, 865ps, 198bpps, and 478bps, respectively.

The gains was driven by ZENITH (+9.98%), DANGSUGAR (+7.77%), DANGCEM (+8.11%), OANDO (+9.78%), and CUSTODIAN (+9.82%).

As with the prior trading session, the market’s activity was broadly strong, with volume traded expanding by 39.00% to 1,193mn units, valued at N17.396bn.

Today’s most traded stocks by volume were Zenith Bank Plc (161.38mn units), First Bank of Nigeria Plc (121.49mn units), and Access Bank Plc (100.85mn units).

On the other hand, the top traded stocks by value are Zenith Bank Plc (N4.463bn), MTN Nigeria Plc (2.743bn), and Guaranty Trust Bank Plc (N1.845bn).

Read Also: Money Market Rates Spike as Banks Make Provision for FX Auction

Elsewhere, the Chapel Hill Denham’s Paramount Equity Fund (PEF) and the Women Investment Fund (WIF) both notched higher by 5.82% and 3.42%, respectively.

Debt Instruments Trade Flattish as Liquidity Moves Equities Rally