In our recent publication ‘ Equities for a Superior Return ‘ we created a hypothetical portfolio of 10 stocks, each with a high Return on Equity and backtested the performance to 1 January 2016. Our readers then asked: "What makes a good equity?"
Last week, the exchange rate at the Investors and Exporters Window (I&E Window) appreciated by 0.17% to N414.40/US$1. Elsewhere, the Central Bank of Nigeria’s (CBN) foreign exchange (FX) reserves declined by 0.31% – its third consecutive weekly decline – to US$41.41bn. However, FX turnover in the official market has been rising recently, contributing to stability in the I&E Window rate. Now that the CBN has brought more liquidity into the official FX markets, we may see continued stability and possibly a further easing of pressure on the parallel market rate as well.
Bonds & T-bills
Last week, activity in the Federal Government of Nigeria (FGN) bond secondary market was bearish as investors focused on the bond Primary Market Auction (PMA). The average benchmark yield for bonds rose by 7bps to 11.36%. On benchmark notes, the yield of the 7-year (+8bps to 11.76%) and 10-year (+24bps to 12.16%) bonds expanded, while the yield on the 3-year bond (-3bps to 9.44%) declined. At the PMA the Debt Management Office (DMO) allotted N225.25bn (US$543.56m) worth of bonds. The marginal yields on the January 2026 (11.65%) and April 2037 (12.95%) bonds were unchanged, while the yield on the March 2050 bond rose by 10bps to 13.30%. Demand was stronger than at the previous auction. A total subscription of N267.15bn (versus N250.71bn at the previous auction) was recorded. However, the bid-to-offer ratio of 1.78x was lower than the 2021 average of 1.97x. Demand was actually weaker, on average, than prior auctions this year. Nonetheless, we maintain our expectation that a future rise in bond yields is unlikely to be sharp as the monetary authorities appear content with recent economic and monetary outcomes (e.g. Q3 GDP growth at 4.0% y/y, a high level of FX reserves).
Trading in the Treasury Bill (T-Bill) secondary market was bullish. The average benchmark yield for T-bills fell by 8bps to 5.11%. In addition, the annualised yield on a 328-day T-bill fell by 27bps to 6.57%. On Wednesday this week, at the T-bill PMA, the DMO is due to rollover N118.73bn worth of maturities, which we believe can be absorbed easily. Elsewhere, the average yield for OMO […]