Home Companies&Markets Weekly Markets Wrap: Bonds yield contracts 32bps to 7.8%, NSE ASI and...

Weekly Markets Wrap: Bonds yield contracts 32bps to 7.8%, NSE ASI and market capitalization drop 0.08% and FX outflows continue


SAT, JULY 18 2020-theG&BJournal– Sentiments in the domestic equities market stayed firmly week throughout the week, as the All-Share Index dropped 0.1% w/w, to 24,287.66 points. Losses in NB (-11.9%) and banking stocks dragged down the index, and offset the gains in AIRTELAFRI (+5.9%), MTNN (+1.6%) and BUACEMENT (+1.2%). Thus, the Month-to-Date and Year-to-Date losses printed -0.8% and -9.5%, respectively.

Sectoral performance reflected the market’s negative performance, with the Banking (-3.9%), Oil & Gas (-1.9%), Consumer Goods (-1.9%) and Insurance (-1.9%) indices all recording weekly losses. The Industrial Goods (+0.5%) index was the sole gainer for the week.

The Financial Services industry (measured by volume) led the activity chart with 784.322 million shares valued at N3.305 billion traded in 10,592 deals; thus contributing 77.23% and 44.45% to the total equity turnover volume and value respectively.

The Oil and Gas industry followed with 61.822 million shares worth N418.191 million in 984 deals. The third place was the Consumer Goods industry, with a turnover of 42.999 million shares worth N1.102 billion in 2,848 deals.

A total turnover of 1.016 billion shares worth N7.436 billion in 18,092 deals were traded this week by investors on the floor of the Exchange, in contrast to a total of 901.542 million shares valued at N13.453 billion that exchanged hands last week in 18,676 deals.

Trading in the top three equities namely Sterling Bank Plc, FCMB Holdings Plc and FBN Holdings Plc. (measured by volume) accounted for 416.989 million shares worth N791.078 million in 2,752 deals, contributing 41.06% and 10.64% to the total equity turnover volume and value respectively.

Analysts advise investors to trade cautiously and seek trading opportunities in only fundamentally justified stocks.

Money market

The overnight (OVN) rate expanded by 765bps to 21.8%, as outflows from CRR debits late in the week outweighed the combined NGN430.00 billion that came into the system from OMO maturities (NGN69.55 billion), FX retail refunds (NGN320.00 billion) and FGN bond coupon payments (NGN40.45 billion).

We expect the OVN to trend southwards next week as inflows from OMO maturities (NGN20.37 billion) and FGN bond coupon payments (NGN133.18 billion) are expected to come into the system.

Treasury bills

The Treasury bills secondary market closed on a bullish note, as average yield across all instruments declined by 11bps to 4.5%. Across the segments, trading in the OMO secondary market (-7bps to 5.6%) improved, on the back of the healthy liquidity in the system. Similarly, bullish sentiments prevailed at the NTB segment (-19bps to 1.9%), as participants covered for lost bids at the PMA. At the PMA, the CBN rolled over the NGN107.04 billion maturing bills, as the auction was oversubscribed, given the dearth of alternatives for local fund managers. The CBN allotted NGN8.85 billion for the 91-day, NGN26.60 billion of the 182-day and NGN71.60 billion of the 364-day – at respective stop rates of 1.30% (previously 1.80%), 1.80% (previously 2.04%), and 3.35% (previously 3.75%).

In the coming week, we expect improved demand for T-bills, as the system is saturated with liquidity.


Trading in the Treasury bonds secondary market remained bullish as increased local participation and improved system liquidity sustained the demand for instruments in the space. Consequently, average yield contracted by 32bps to 7.8%. Across the curve, yields at the short (-80bps) and long (-18bps) ends contracted, due to demand for the APR-2023 (-143bps) and MAR-2050 (-27bps) bonds, respectively; whereas it was flat at the mid-segment.

We expect investors’ focus to shift to the primary market, as investors anticipate supply from next week’s PMA. At the auction, the DMO will offer NGN150.00 billion across four instruments to investors – re-openings of the 12.50% JAN-2026, 12.50% MAR-2035, and 12.98% MAR-2050 bonds, and a new issue JUL-2045 bond.

Nonetheless, we still expect some increased activity at the secondary market as investors cover lost bids at the auction which is likely to be oversubscribed.

A total of 2,408 units valued at N2.614 million were traded this week in 9 deals compared with a total of 11,487 units valued at N14.769 million transacted last week in 13 deals.

Foreign exchange

The CBN’s foreign reserves sustained its descent as FX outflows continue to outpace inflows, thus dipping by USD13.78 million w/w to USD36.12 billion. Nonetheless, the naira weakened against the US dollar by 0.4% w/w to NGN388.50/USD at the I&E window, and by 1.1% to NGN470.00/USD at the parallel market. In the forwards market, the naira weakened against the US dollar across the 1-month (-0.4% to NGN390.10/USD), 3-month (-0.3% to NGN393.51/USD) and 1-year (-0.1% to NGN413.53/USD) contracts while it strengthened by 0.1% to NGN398.22/USD in the 6-month contract.

Despite the CBN’s stronger commitment towards exchange rate unification, we still see legroom for the currency to depreciate further, at least towards its REER derived fair value. Our prognosis is hinged on (1) the widening current account (CA) position, (2) currency mispricing, which could induce speculative attacks on the naira, and (3) the resumption of FX sales to the BDC segment of the market which should place an additional layer of pressure on the reserves as the CBN funds the backlog of unmet FX demand.-With Cordros Research

|twitter:@theGBJournal|email: info@govandbusinessjournal.com.ng|