Unexpected Crash in FGN Bond Yields Triggered by Short Covering from Market Participants
FGN Bonds
The FGN bond market witnessed a major short squeeze on selected bond papers due to persistent short-covering by traders, which triggered a rally across the entire bond yield curve. The 2045s saw the largest movement in yield terms as bids dropped to the sub 13% level at the early hours of trading with desperate buyers scrambling to lift any available offer in the market. The 2027s and 2035s papers also gained traction starting at 13.25% and 12.60% but then, shedding additional 20bps within the day. Consequently, yields compressed by c.23bps across the benchmark curve.
We expect investors to take a cautious view of the FGN bond market as most bonds especially at the long end of the curve approach the psychological 13.00% mark.
| Benchmark FGN Bonds | ||||
| Description | Bid (%) | Offer (%) | Day Change (%) | |
| 12.75 27-Apr-23 | 11.98 | 11.04 | (0.01) | |
| 14.20 14-Mar-24 | 12.23 | 11.55 | (0.18) | |
| 13.53 23-Mar-25 | 12.49 | 11.37 | 0.00 | |
| 12.50 22-Jan-26 | 12.49 | 11.07 | 0.00 | |
| 16.29 17-Mar-27 | 12.70 | 12.50 | (0.41) | |
| 13.98 23-Feb-28 | 12.72 | 12.40 | (0.11) | |
| 14.55 26-Apr-29 | 12.70 | 12.38 | (0.19) | |
| 12.15 18-Jul-34 | 13.55 | 13.02 | (0.25) | |
| 12.50 27-Mar-35 | 13.75 | 13.01 | (0.10) | |
| 12.40 18-Mar-36 | 13.50 | 13.01 | (0.40) | |
| 16.2499 18-Apr-37 | 13.60 | 13.00 | (0.20) | |
| 9.80 24-Jul-45 | 13.30 | 12.90 | (0.55) | |
| 14.80 26-Apr-49 | 13.50 | 13.00 | (0.40) | |
| 12.98 27-Mar-50 | 13.50 | 13.00 | (0.40) | |
Treasury Bills
The T-bills market opened the day with a demand rush for the new 364 days NTB as local investors defaulted to the secondary market to cover their lost bids. Most of the trades on the 364days paper were crossed at 8.90% and eventually closed the day at 8.60% levels on the offer. We also saw few offers on mid-long term OMO bills which remained shunned by buyers who were interested in dealing in the special T-bills due to the more attractive yield at 8.55%.
Tomorrow, we expect buyers to continue to show interest in the new NTB 1yr issue and special T-bills which should most likely be met with improved offers as we close the week.
| Benchmark OMO Bills | |||
| Description | Bid (%) | Offer (%) | Day Change (%) |
| NGOMOB 0 09/07/21 | 11.00 | 1.50 | 0.00 |
| NGOMOB 0 10/19/21 | 11.00 | 3.00 | 0.00 |
| NGOMOB 0 11/02/21 | 12.00 | 2.00 | 0.00 |
| NGOMOB 0 12/07/21 | 12.00 | 2.50 | 0.00 |
| NGOMOB 0 01/11/22 | 12.50 | 2.50 | 0.00 |
| NGOMOB 0 02/01/22 | 12.50 | 2.50 | 0.00 |
| NGOMOB 0 03/01/22 | 12.50 | 3.50 | 0.00 |
| Benchmark NT-Bills | |||
| Description | Bid (%) | Offer (%) | Day Change (%) |
| NIGTB 0 05/13/21 | 8.00 | 1.50 | 0.00 |
| NIGTB 0 06/10/21 | 9.00 | 1.50 | 0.00 |
| NIGTB 0 07/01/21 | 10.00 | 2.00 | 0.00 |
| NIGTB 0 08/26/21 | 10.00 | 2.00 | 0.00 |
| NIGTB 0 09/09/21 | 10.00 | 2.00 | 0.00 |
| NIGTB 0 10/14/21 | 10.00 | 2.50 | 0.00 |
| NIGTB 0 11/11/21 | 11.00 | 2.50 | 0.00 |
| NIGTB 0 01/13/22 | 11.00 | 3.00 | 0.00 |
| NIGTB 0 02/10/22 | 11.00 | 3.00 | 0.00 |
| NIGTB 0 03/01/22 | 8.00 | 1.50 | 0.00 |
Money Markets
Money market rates trended upward by another 238bps today, as system liquidity remained negative for a second consecutive session opening the day at -N66.38B, 27% lower compared to yesterday’s open. Naira dealers continue to scramble for funds in the interbank market by increasing deposit rates to attract local investors, alternatively staying camped at the SLF space. Consequently, Open Buy Back (OBB) and Overnight (O/N) rates closed at 18.25% and 18.75% respectively at the end of the trading session.
We expect funding rates to stay elevated tomorrow as the market does not expect any significant inflows to alleviate the current illiquidity in the interbank space.
| Money Market Rates | ||
| Current (%) | Previous (%) | |
| Open Buy Back (OBB) | 18.25 | 16.00 |
| Overnight (O/N) | 18.75 | 16.25 |
FX Market
At the IEFX space, we saw a dip in the supply of the greenback, as traded volumes decreased by 30% DoD. However, the Naira remained relatively stable, closing the session 0.12% stronger at N411.50/$ despite the low volumes,
At the Cash market, panic selling was the order of the day on the back of the rumors of an expected increase in FX sales to the BDC segment of the market by the CBN. Rates initially opened at N476/$/N480/$, albeit these levels were short-lived as local demand drove rates back upward with the market eventually settling at 496/$ level. The transfer market on the other hand traded flat as rates closed flat D/D at N514/$.
| FX Market | ||
| Current (N/$) | Previous (N/$) | |
| CBN SMIS | 380.69 | 380.69 |
| I&E FX Window | 412.00 | 412.00 |
| Cash Market | 496.00 | 501.50 |
| Transfer Market | 514.00 | 514.00 |
Eurobonds:
The NIGERIA Sovereigns had a calm trading session, as market attention shifted to other sub-Saharan markets. The Kenya market had the most traction of all the sub-Saharan markets as investors queued up their bids for the new 2034s issue. As expected, it was a bullish auction with rates compressing by 0.58bps between the Book open and the Book close. Highlighted below are the terms of the bond as at Book close:
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