FGN Bond Prices Depreciate on Profit-taking

MARKET INDICATOR

By Obinna Chima

In line with analysts’ expectation, the over-the-counter (OTC) FGN bond market witnessed renewed profit-taking activity, resulting in higher bond yields across all maturities.

Week-on-week, while the 20-year, 10.00% FGN JUL 2030 debt appreciated by N2.31 (yield increased to 14.25%); 10-year, 16.39% FGN JAN 2022 paper lost N2.18 (yield rose to 14.00%); the 7-year, 16.00% FGN JUN 2019 tanked by N1.16 (yield increased to 13.75%); and the 3-year, 13.05% FGN AUG 2016 paper shed N0.26 (yield rose to 7.53%).

Also, a report by Cowry Asset Management Limited showed that on the London Stock Exchange, traded FGN Eurobonds appreciated on sustained bargain hunting. Specifically, the 10-year, 6.75% FGN JAN 2021 paper; the 5-year, 5.13% JUL 12, 2018 bond; and the 10-year, 6.38% JUL 12, 2023 bond gained $0.63 (yield fell to 6.43%), $0.05 (yield decreased to 4.64%) and $0.40 (yield declined to 6.81%) respectively.

This week, Debt Management Office will issue Federal Government bonds worth N120 billion, viz: 5-year, FGN JUL 2021 bond (a new issue) worth N40 billion; 10-year, 12.50% FGN JAN 2026 paper worth N40 billion; and 20-year, 12.40% FGN MAY 2036 bond worth N40 billion.

“We expect yields at the primary market to trend northwards to compensate for increased inflation outlook,” the Cowry Asset report added.

On their part, analysts at Afrinvest West Africa Limited revealed that contrary to last month when the Nigerian sovereign bonds instruments commanded the highest year-to-date return, South Africa and Ghana instruments have overtaken the Nigerian sovereign bond instruments with average year-to-date return of +12.6 per cent and + nine per cent respectively compared with eight per cent average year-to-date return of the Nigerian sovereign bond instruments. Furthermore, the noted that trading sentiment in the first half of 2016 was mostly guided by heightened inflationary pressure and FX risk factors.

“However, we expect the moderation in FX related risk to spur foreign investors’ interest in Nigerian assets in the second half of 2016 which could offset the tendency of domestic investors to price-in inflation risk. Nonetheless, the aggressive play of the CBN in liquidity management after the return to a more market-friendly FX regime could anchor yields upward in the immediate term,” Afrinvest stated.

Forex Market

In the just concluded week, foreign exchange market segments recorded mixed movement in exchange rates after a three day public holiday from Tuesday to Thursday.

As business activity resumed at the end of the holidays on Friday, the naira depreciated week-on-week against the United States dollars greenback at the interbank market by 0.09 per cent to N282.25/$1 amid built up demand for foreign exchange.

However, at the Bureau De Change segment, the naira/dollar exchange rate closed steady at N345 on Friday. Conversely, the local currency strengthened against the United State greenback by 0.85 per cent to N352/$1 at the parallel market.  The parallel market was also quiet as the naira was stable, trading at N352/$1 on all days of the week.

This week, analysts anticipate stability in the foreign exchange rate amid foreign portfolio investments in local fixed income instruments. They also expressed the belief that the ability of the CBN to fulfil the $3.5 billion forward commitments in June would massively boost confidence levels in the Nigerian FX market, adding that the market is expected to stay soft in the week ahead in the absence to autonomous supplies and guided trading band in the new interbank market. They also expect rate at the parallel market to trend circa current levels.

Interbank Market

In the just concluded week, Nigerian interbank money market moved in mixed directions as financial system liquidity remained relatively stable. The Nigerian Interbank Offered Rate (NIBOR) for overnight funds and 1 month tenor bucket increased to 7.79 per cent (from 4.42%) and 10.96 per cent (from 10.82%) respectively.

However, NIBOR for three months and six months placement tenors moderated to 13.14 per cent (from 13.62%) and 14.79 per cent (from 15.29%) respectively.

Meanwhile, yields on the Nigerian Interbank True Treasury Bills Yield (NITTY) mostly increased on sell pressure–yields on the 1 month, 3 months and 6 months maturities increased to 8.06% (from 7.72%), 10.50% (from 9.77%) and 10.54% (from 10.30%) respectively, according to Cowry Asset Management Limited. However, 12 months NITTY moderated to 12.46 per cent (from 13.38%).

Furthermore, the report by Afrinvest showed that financial system liquidity opened last week at N330 billion with Open Buy Back rate (OBB) rising 0.1 per cent to close at 4.6 per cent whilst overnight rate closed flat at five per cent last Monday. There was a treasury bills auction on Friday where N28 billion, N42 billion and N120 billion of the 91-day, 182-day and the 364-day bills were auctioned at 9.98 per cent, 12.24 per cent and 14.99 per cent stop rates. The proposed allotment by the central bank was twice the offer amount, implying a significant liquidity mop-up from the system. Also, the average treasury bills rate remained at last week’s 9.4 per cent as investors awaited the central bank’s treasury bills auction.

This week, analysts expect NIBOR to trend upwards amid anticipated investments in fixed income instruments

Stanbic IBTC Bank Partners Google on Digital Inclusion

Stanbic IBTC Bank, a member of Stanbic IBTC Holdings Plc and Google, have sealed a deal that will enable youths and operators in the small and medium scale enterprises (SMEs) segment in the country to acquire digital skills for economic advancement.

The thrust of the collaboration, according to the parties, was to facilitate capacity building for SMEs in Nigeria, help entrepreneurs accelerate their businesses, support digital education initiatives geared towards job creation as well as address the key challenges that SMEs face in growing their businesses. Specifically, participants will be trained on the benefits, skills and value of digital marketing.

By organising the capacity building sessions in different parts of the country, the partners hope to build a critical mass of businesses through increased adoption of digital technology and enhance their contribution to economic development.

The training session is scheduled to kick-off in Lagos and Kaduna on July 19, 2016 and will subsequently hold in seven other states across the country. The initiative aims to digitally empower about one thousand SMEs in one year.

Head, SME Banking, Stanbic IBTC Bank, Obinnia Ukachukwu, stated that as diversification of Nigeria’s economy returns to the front burner, it has become imperative to highlight the role of digital technology on empowering the youth and stimulating growth of SMEs.

Ukachukwu said the collaboration fits into the institution’s goal of fostering economic empowerment through strategic interventions that enable individuals and businesses realize their aspirations. He said it was in pursuit of this objective that the Stanbic IBTC Bank organizes several capacity-building initiatives spanning various sectors of the economy, transport and logistics, trade and finance, in an on-going basis to support individuals and businesses.

“The SME segment is pivotal to the economic growth and development of any nation and Nigeria should not be an exception.  This belief underlines our conviction that the collaboration with Google will expose the youth and SME operators to modern and innovative marketing, financial, and management skills using digital technology, which will help them to achieve success in their endeavours,” Ukachukwu, said.

He added: “We are quite pleased to partner with Google on this strategic initiative. Our ultimate goal is to cause, in the long term, an exponential growth in the digital technology space, knowing that this is the path to the future, with the youth and SMEs as the main anchors.”

Stanbic IBTC Bank’s commitment to the growth of the SME segment, Ukachukwu said, could be deciphered through the various digital banking products and support from the bank’s stable. For instance, the bank had launched an internet banking offering specifically for SMEs as well as SME BizDirect, a personalised digital banking platform. “The SME BizDirect is a multi-channel virtual business centre that avails the SME operator a personalised channel through which to engage the bank when the need arises. To help clients improve operations, we believe a migration to digital banking will reduce the challenges faced by customers and help them run more efficient businesses,” he added.

Head of Digital Education, Google Africa, Bunmi Banjo, said: “We’re happy to be collaborating with Stanbic IBTC Bank to provide free digital trainings to local entrepreneurs. With over 97 million online subscribers, Nigeria continues to be one of the highest online populations in the world. And this presents big opportunities for the Small and Medium Business sector. We believe that when these SMEs have the right digital skills, they can better leverage the Internet to grow their businesses, create more jobs and boost economic growth in Nigeria.”