Eurobond yields decline, as public debts rises 2.3%


In the sovereign Eurobonds space, the bullish run continued last week as yields on all the instruments under our coverage fell Week-on-Week (W-o-W).
Sustaining the trend of the past weeks, the Zambian 2022 and 2024 Eurobonds enjoyed the most buying interest with yields shedding 196bps and 189bps respectively. This was followed by the Ghanaian 2049 and the Nigerian 2049 instruments which declined by 83bps and 78bps in that order. 


For corporate Eurobonds, there was a sustained bullish momentum as yields fell across board. The EBN Finance 2021 saw the most buying interest, shedding 88 basis points (bps) W-o-W. This was closely followed by the SEPLAT 2023 and FIDELITY 2022 instruments, which shed 70bps and 71bps W-o-W respectively.
During the week, we received information that the EBN Finance 2021 instruments will be recalled on 14th August 2019. We maintain our bullish stance in the coming week as we expect investors to take advantage of high spread offered by emerging markets assets.


Last week, the Debt Management Office (DMO) reported that total public debt increased 2.3 per cent  to N24.9 trillion ($ 81.3 billion)  between the fourth quarter of 2018 and first quarter of 2019. 
“We noticed that outstanding domestic debt accounted for 81.8 per cent of the total increase of N560.0 billion as the Federal Government is yet to issue Eurobonds to finance the 2019 budget. 
The share of domestic and external debt to total debt moved closer to the targeted mix of 60:40, printing at 68.5 per cent (N7.9 trillion) and 31.5 per cent (N17.1 trillion) respectively in the first  quarter of 2019. Total public debt to Gross Domestic Produc (GDP) ratio stood at 19.6 per cent, within the acceptable threshold of 56.0 per cent established by the IMF and World Bank”, said Afrinvest.


Analysts however argued that, it is not about being within the threshold, but what the monies were used for and can be seen physically.
This week, activities in the domestic bonds market were bullish with average yield across maturities declining 15bps W-o-W to settle at 13.6 per cent.
The market experienced a bullish outing on Wednesday (-5bps) and Thursday (-23bps) only, but a bearish performance on the other trading days. We observed buying interest across term structure, although short-term instruments enjoyed the most buying interest with a 50bps W-o-W decline in yields while long and medium-term bonds shed 9bps apiece.
At the foreign exchange market, naira remains steady following intervention from the CBN. Last week, the Naira remained relatively stable across Foreign Exchange (FX ) markets as the CBN sustained its weekly FX sales. 


On Tuesday, the apex bank intervened with total FX sales of US$210.0m, including sales of $100.0 million in the wholesale segment while the Small and Medium Enterprises (SME) and the Invisibles segments received $55.0 million each. 
During the week, there was a mild improvement in the foreign reserves as it rose by $11.9 million to settle at $45.1 billion (10th of July 2019). The increase in Brent crude oil price by 3.6 per cent to $65.2/bbl during the week is expected to support exports an in turn accretion to reserves.


Over the week, the CBN spot rate traded flat at ₦307.00/$ while at the parallel market, the exchange rate slightly strengthened after it opened the week at ₦361.0/US$1.00 but closed the week at ₦360.00/US$1.00. Activity level waned sharply as average turnover plunged by 61.0 per cent, falling from $294.1 million (4th of July 2019) to $107.6 million (11th of July 2019).
Following increased activities at the FMDQ OTC futures market, the total value of contracts printed at $9.8 billion (11th of July 2019) from the $9.7 billion (5th of July 2019) recorded last week. The NOVEMBER 2019 contract received the most buying interest, buoying the value by $50.0 million. 
On the flip side, the JULY 2020 contract with a total market value of $46.7 million was the least bought. Following the desire of the CBN to keep supporting the Naira as disclosed in the five-year agenda, we expect the multiple exchange rates to remain stable. 


Due to robust system liquidity (N500.1 billion) at the beginning of the week, the Open Buy Back (OBB) and Overnight (OVN) rates opened low at 3.4 per cent and 4.1 per cent on Monday from the close of 3.9 per cent and 4.6 per cent  last week. As there were no auctions, OBB and OVN rates further declined to 3.0 per cent and 3.6 per cent following maturing OMO bills of N184.8 billion on Thursday, with system liquidity closing the session at N443.1 billion.
Subsequently, system liquidity settled at  N334.1 billion with OBB and OVN rates at 2.2 per cent and 2.9 per cent respectively.
In the secondary market, performance was bullish as rates across maturities declined 40bps W-o-W to 10.8 per cent from 11.2 per cent following strong demand due to buoyant system liquidity in the absence of OMO auctions. 
The 91-day, 182-day and 364-day instruments trended lower to settle at 10.1%, 10.7 per cent and 11.5 per cent compared to 10.3 per cent, 11.7 per cent and 11.6 per cent respectively in the previous week. 

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