Nigeria Fixed Income Weekly

The Week that was (June 11-14):  – CBN’s no-show stuns debt markets driving yields lower

  • CBN wrong foots markets sending interest rates south: Last week was eventful – in between the World Cup kicking off in Russia and the long awaited US-North Korea talks which ended in a whimper, the US Federal Reserve hiked rates as expected and gave a hawkish forward guidance while the ECB announced plans to step-down its QE program by year-end. While the latter two events suggested that domestic interest rates were set to track higher, in keeping to the spirit of the CBN forward guidance at the May 2018 MPC, the CBN surprised markets by not carrying out an OMO auction on Thursday. This implied that OMO maturities of NGN244billion flooded the financial system pushing down overnight and OBB rates to 3.67% and 4.2% respectively from double digit levels at the start of the week. In addition, this pushed down yields on Nigerian Treasury Bills down 90bps on average: 91-day (Discount: 10.9%, Effective: 11.2%), 182-day (Discount: 11.2%, Effective: 11.8%) and 1-yr (Discount: 12.6%, Effective: 14.1%).
  • Disinflation continues in May on base effects: The National Bureau of Statistics (NBS) reported that headline inflation slowed for the 16th consecutive month to 11.61% y/y in May (April: 12.5% y/y). Given that monthly inflation printed higher at 1.1% (April: 0.8%), the dip in the headline number continues to reflect the falling off of the high base in 2017 from the chained CPI series. The declining pattern continues to reflect the impact of a largely stable exchange rate backdrop which has helped anchor inflationary expectations and reclining petrol prices. Excluding volatile food prices, core inflation printed at a 28-month low of 10.7% y/y which suggests demand pressures remains largely subdued. The decline in inflation drove an 80bps m/m expansion in the real yield to 250bps.

Figure 1: Nominal and Real Yields

real yields

Source: NBS, FMDQ

  • NTB auction boring as usual, corporate issuances slipping under the radar: at the weekly NTB auction, the FGN continued to take advantage of the oversubscription on offer (with bids of NGN250.9billion for the NGN180.9 billion on sale) to rollover NTB maturities at sub-market stop rates of between 10.2%-11.5%. With a reduced FGN posture in domestic bond markets, some corporates have seized the moment with C&I Leasing announcing that its NGN7billion 5-year bond offer was issued at a yield of 16.54% with 133% oversubscription.

The Week Ahead (June 19-22): All eyes on the CBN

In the four day trading week ahead, system maturities rise to NGN444billion split between OMO (85%) and NTB (15%) which implies that there will be an NTB auction on Wednesday where the CBN will offer NGN68billion across the 91-day (NGN5.4billion), 182-day (NGN20billion) and 1-yr (NGN41.3billion). In addition, President Muhammadu Buhari is likely to sign the 2018 budget into law which will see the FG attempt to spend NGN9.1trillion (up from the initial NGN8.6trillion).

In terms of how markets will trade, focus will be on trying to figure out CBN’s lukewarm stance at system liquidity. In my view, the CBN either seems to be trying to force debt markets reprice the lower inflation readings or is trying to thumb off debt markets for sub-par subscription at recent OMO auctions. Either way, markets are likely to remain at these levels until currency market pressures re-surface which will force CBN to re-evaluate its view.

Figure 2: Naira Yield Curve

NGN yieldd curve

Source: NBS, FMDQ



  • OMO: Open Market Operations
  • NTB: Nigerian Treasury Bill
  • FGN: Federal Government of Nigeria
  • CBN: Central Bank of Nigeria
  • FAAC: Federal Accounts Allocation Committee
  • I&E: Investors and Exporters Window
  • NBS: National Bureau of Statistics

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