Tuesday, April 09, 2019 11:45 AM / Coronation Research / Header Image Credit: FX Empire
There was a small amount of profit-taking in the T-bill market last week, but the overall sense is one of mission accomplished – for 2019 – when it comes to reductions in market interest rates, stabilising FX reserves and anchoring the Naira. Equities languish, pending a pick-up in economic growth.
FX
The Central Bank of Nigeria’s (CBN) FX reserves currently stand at US$44.68bn. Since the beginning of the year US$7.75bn has been injected into the NAFEX market through Foreign Portfolio Investment (FPI) while the CBN’s contribution has been just US$1.42bn. We believe that the current reserve level is sufficient for the CBN to defend the Naira exchange rate through 2019.
Bonds & T-bills
The yield on a Federal Government of Nigeria (FGN) Naira bond with 10 years to maturity rose by 36bps to 14.71%, and at 3 years rose by 37bps to 14.34% last week. The yield on a 364-day T-bill rose by 3bps to 14.61%. The yield on a T-bill with 3 months to maturity increased by 107bps to 11.98%.
Following a significant inflow of foreign money into Nigeria’s fixed income markets which brought the 364-day T-bill yield down by 243bps during February and a further 44bps in March, there was a little profit-taking last week. The yields at one and at 10 years now are only 10bps apart. Given that we expect a low issuance level compared with recent months, we think the CBN will be content to see 364-day risk-free rates fall a little further, perhaps to a range of 13.80% to 14.30% (see Coronation Research: Monetary Policy Committee, Surprise cut to 13.50%, 26 March).
Oil
The price of Brent increased by 2.85% last week to US$70.34/bbl. The average price, year-to-date, is US$64.25/bbl, 10.38% lower than the average of US$71.69/bbl in 2018, but 17.35% higher than the US$54.75/bbl average seen in 2017.
Oil is currently trading above its five-month high and, in our opinion, may continue to rally on the basis of escalation of the conflict in Libya. The risk is of a shortfall in oil supply from Libya, adding to the current supply squeeze from Venezuela and Iran.
Equities The Nigerian Stock Exchange (NSE) All-Share Index recorded a loss of 4.59% last week, taking the year-to-date return to negative 5.77%. Last week Sterling Bank (+8.33%), Cadbury Nigeria (+5.00%) and Stanbic IBTC (+0.54%) […]