Debt Market Records Mixed Performance as Naira Depreciates

Debt Market Records Mixed Performance as Naira Depreciates

The Nigerian debt market records mixed performance at the beginning of the week as the local currency, Naira depreciates further.

In the new week, it was noted that that bulls ushered some yield adjustment in the Nigerian Treasury Bills space as the debt market records mix activities.

In the Treasury bill segment, market data shows that average yield contracted by 3 basis points (bps) to average 1.5% at the close of trading session on Monday.

In a commentary, Greenwich Merchant Bank said although the market was bullish, trade was largely flattish especially on the short and long ends of the market.

It noted that on Wednesday, the CBN will be rolling over maturing bills worth NGN128.2 billion across the 91-day (NGN20.4 billion), 182-day (NGN55.9 billion), and 364-day (NGN52.0 billion).

“We expect investors to continue to demand higher stop rates in line with the recent trend. Also, system liquidity opened 66.6% lower at NGN69.4bn from NGN207.6bn on Friday”, Greenwich stated.

However, funding rates fell, with the Open Buy Back and Over Night rates at 15.0% and 15.3% respectively from 20.0% and 20.5%.

Analysts said they expect liquidity level to improve, given expected inflows from OMO bills (NGN476.4 billion), and FGN Bond coupon payment of NGN49.9 billion tomorrow.

Elsewhere, the OMO market was unchanged, keeping yields at 6.4% on average.  Notably, selloffs at the short end of the market were muted by buying interests at the long segment.

Meanwhile, bears held sway in the bond market, pushing yields higher by 13bps to average 9.5%.

Across the curve, the outcome was mixed as the long end traded bearish (+37bps), in contrast to a mildly bullish short end (-1bp), and a flat intermediate segment.

“We anticipate that investors will remain bearish this week, although this momentum might weaken”, analysts said.

In the Parallel FX market, the Naira weakened by NGN2.00/USD from NGN478.00/USD on Friday to NGN480.00/USD.

Though, after initial rout reported last week, Naira stabilized at NGN410.00/USD at the investors and exporters window on Monday.

NSE Sheds ₦17.1 Billion as Investors Exit Positions

Meanwhile, the Nigerian Stock Exchange, NSE, sheds ₦17.1 billion on Monday as more investors exit their positions –dumping shares- following yields adjustment in the fixed income market.

Some conservative investors, especially, the Pension Fund Administrators are adjusting portfolio as yields on fixed income assets rise.

After losing streaks in the past week, the equities market started the new week on a bearish note.

Specifically, the benchmark index fell 8 basis points (bps) to 40,154.09 points due to weak investors’ sentiment.

Driving the NSE Index decline was sell pressures in WAPCO (-8.0%), FIDELITY (-3.2%) and UCAP (-5.5%).

Accordingly, the year to date loss worsened to -0.3% while market capitalisation declined settle at ₦21 trillion.

Based on market data, trading activity was mixed as volume dipped 6.0% to 289.3 million units while value improved by 23.0% to ₦3.6 billion.

The most traded stocks by volume were FBNH (57.6 million units), UCAP (27.4 million units) and GUARANTY (26.8 million units).

Meanwhile GUARANTY trades came at ₦820.5 million, ZENITH ₦540.3 million and MTNN (₦464.7 million) to lead the value chart.

Mixed Sector Performance:

In market report, Afrinvest, a leading investment banking firm, said there was a mixed performance across sectors under its coverage.

The Banking and Oil & Gas indices gained 0.2% and 0.1% respectively due to price upticks in STANBIC (+3.4%), UBA (+1.2%) and OANDO (+1.0%).

Conversely, sell-offs in WAPCO (-8.0%) drove the Industrial Goods index lower by 0.6%.

The Insurance and Consumer Goods indices also declined 0.1% apiece as AIICO (-2.6%), NEM (-2.4%) and UNILEVER (-2.5%) lost.

In addition, the AFR-ICT closed flat.

Investor Sentiment Weakens

Investor sentiment as measured by market breadth weakened to 0.8x from the 0.9x recorded previously as 19 stocks advanced against 25 decliners.

NSE charts indicates that UPDCREIT (+9.3%), CHIPLC (+9.1%) and ACADEMY (+8.6%) were the top gainers.

Then, AFRIPRUD (-9.6%), LASACO (-9.5%) and NIGERINS (-8.7%) were the top losers.

“We expect corporate earnings release to guide the direction of the market this week”, Afrinvest said.

Some conservative investors, especially, the Pension Fund Administrators are adjusting portfolio as yields on fixed income assets rise.

After losing streaks in the past week, the equities market started the new week on a bearish note.

Specifically, the benchmark index fell 8 basis points (bps) to 40,154.09 points due to weak investors’ sentiment.

Driving the NSE Index decline was sell pressures in WAPCO (-8.0%), FIDELITY (-3.2%) and UCAP (-5.5%).

Accordingly, the year to date loss worsened to -0.3% while market capitalisation declined settle at ₦21 trillion.

Based on market data, trading activity was mixed as volume dipped 6.0% to 289.3 million units while value improved by 23.0% to ₦3.6 billion.

The most traded stocks by volume were FBNH (57.6 million units), UCAP (27.4 million units) and GUARANTY (26.8 million units).

Meanwhile GUARANTY trades came at ₦820.5 million, ZENITH ₦540.3 million and MTNN (₦464.7 million) to lead the value chart.

Mixed Sector Performance

In market report, Afrinvest, a leading investment banking firm, said there was a mixed performance across sectors under its coverage.

The Banking and Oil & Gas indices gained 0.2% and 0.1% respectively due to price upticks in STANBIC (+3.4%), UBA (+1.2%) and OANDO (+1.0%).

Conversely, sell-offs in WAPCO (-8.0%) drove the Industrial Goods index lower by 0.6%.

The Insurance and Consumer Goods indices also declined 0.1% apiece as AIICO (-2.6%), NEM (-2.4%) and UNILEVER (-2.5%) lost.

In addition, the AFR-ICT closed flat.

Investor Sentiment Weakens

Investor sentiment as measured by market breadth weakened to 0.8x from the 0.9x recorded previously as 19 stocks advanced against 25 decliners.

NSE charts indicates that UPDCREIT (+9.3%), CHIPLC (+9.1%) and ACADEMY (+8.6%) were the top gainers.

Then, AFRIPRUD (-9.6%), LASACO (-9.5%) and NIGERINS (-8.7%) were the top losers.

“We expect corporate earnings release to guide the direction of the market this week”, Afrinvest said.

FX: Investors Window Records 34% Turnover Drop, Dust Confidence

Investors/Exporters foreign exchange (FX) window recorded more than 34% turnover drop last week, dusted investors’ confidence as price discovery mechanism according to analysts at Chapel Hill Denham.

The Battle to save the soul of the Nigerian local currency, Naira will continue this week despite foreign exchange scarcity, weak external reserves.

Last week, exchange rate remained unchanged at N379.00 and N380.69 at the official and SMIS windows, respectively.

Though, at the Investors/exporters window, the naira came under further pressure shedding 1.3% week on week or N5.33 to N410.00.

In market report, Chapel Hill Denham said average daily turnover in the Investors/Exporters Window declined by 31.4% last week over the previous to US$45.71 million.

The firm said this reflects weak investor apathy and low confidence in the price discovery mechanism of the window, amidst weak supply by the CBN into the market.

In the parallel market, the naira fell by 1.05% last week by N5.00 to N478.00 while the external reserves declined by 0.64% in the same period to US$35.53 billion.

The Central Bank of Nigeria (CBN) published the 2020 Half-Year Activity Report which showed that a total of US$10.31 billion was sold at the foreign exchange market.

This comprised US$5.06 billion at the I & E window, US$1.20 billion at the inter-bank spot, US$570.00 million for SMEs, US$312.00 million for invisible, while forwards sales were US$3.17 billion.

The Bank purchased a total of US$2.21 billion, which resulted in a net sale of US$8.10 billion. The sum of US$5.43 billion matured at the forwards segment, while US$2.50 billion was outstanding as at June 2020.

“The duration apathy in Nigeria’s fixed income market persisted last week as investors remained cautious amid a bearish Debt Management Office (DMO) bond auction, rising inflation expectation, anticipated tighter monetary policy by the CBN and expectation of greater supply of bonds”, Chapel Hill Denham stated.

Notably, yields expanded across the benchmark bond yield curve by an average of 44bps to an 8-month high of 10.18%.

In the interbank market, liquidity conditions were broadly benign, until huge outflows on Friday led to a spike in funding rates.

As a result, the NTB benchmark curve was flat at an average of 1.45%, although the OMO curve eased by an average of 30bps wow to 6.02%.

Chapel Hill Denham said all key data releases last week provided additional justification for bond bears, noting that the January inflation data was a negative surprise.

Headline inflation maintained an upward trajectory for the 17th month, printing higher by 71 bps to a 45-month high of 16.47% year on year.

Also noted was the outcome of the DMO’s February bond auction was bearish, as marginally rates surged by an average of 254bps to 11.10%: MAR-27 (+227bps to 10.25%), MAR-35 (+251bps to 11.25%), JUL-45 (+285bps to 11.80%).

The DMO offered N150 billion, but demand was weak with investor subscription pegged at N189.51 billion, implying a bid-offer ratio of 1.3x, compared to 1.6x in January.

Investors demanded substantially higher yields, hence, the DMO allotted only N80.55bn at the open auction and issued an additional N122bn as a non-competitive allotment.

Lastly, the Q4-2020 GDP data published by the DMO on Thursday showed that the Nigerian economy made a surprising early recovery from the COVID-19 induced recession, which lasted from Q2 to Q3-2020.

Economic activities expanded by 0.11% year on year, a sizeable improvement from -3.62% year on year in Q3-2020.

“Given heightened macroeconomic instability – elevated inflationary pressures and wide FX parallel market spread – the argument for a pro-growth monetary policy bias will increasingly become weaker, particularly as economic activities have surpassed expectation in recent quarters”, the firm stated.

Notwithstanding considering the aggressive upward repricing of yields in recent weeks and the sizeable cash position of local asset managers, analysts at Chapel Hill Denham said they expect buyers to return to the market once 10ys rise above 12%.

This week, analysts said investors will be looking forward to the NTB auction holding on Wednesday.

The CBN, on behalf of the DMO, is expected to offer a total of N128.2bn across three tenors: 91-day (N20.37bn), 182(N55.85bn) and 364-day (N52.0bn).

The previous auction cleared at 1.0%, 2.0% and 4.0% respectively.

“We expect system liquidity to improve this week, due to the disbursement of February FAAC allocation and OMO maturities totaling N472.42bn.

“Yet, odds are in favour of higher-stop rates on Wednesday” Chapel Hill Denham maintained.

SSA Eurobonds

The Sub-Saharan African (SSA) Sovereign foreign currency (FCY) bond yields rose last week, amid a global bond selloff, sparked by a global reflation trade which led to a surge in US treasury yields.

The ongoing reflation trade in global markets, which could lead to rising interest rates as markets begin to speculate on Quantitative Easing (QE) tapering in the US, is a major upside risk to FCY bonds yields in 2021.

“For now, the US Fed has assured markets it is not a hurry to withdraw its accommodative support, and we do not envisage any tightening of monetary policy in the near term, given structural labour market challenges likely to emerge post-crisis”.

However, Chapel Hill Denham express believe that credit risks and the possibility of taper tantrum are thematic subjects for 2021.

PFAs Ride on Yields Re-pricing to Adjust Risk Appetite

Debt Market Records Mixed Performance as Naira Depreciates