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Foreign investors’ apathy towards FGN Bonds to  persist 

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  • …as yields hit 8-month high
  • *External reserves drop to 4-month low at $46.7bn

By Babajide Komolafe

Foreign investors’ apathy to FGN bonds, which sent yields to eight months high last week is expected to persist this week.

Last week, prices of most FGN bond traded in the secondary market fell with yields rising to new levels.

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The decline in prices, according market analysts was due to sell offs, especially by real money offshore investors, in response to political risks heightened by the siege on the National Assembly by officers of the Department of State Security.

According to analysts at Lagos based Cowry Assets Management Limited: “In the just concluded week, FGN bonds traded at the over-the-counter (OTC) segment depreciated in value for most maturities tracked on renewed sell pressure as political risk continued to weigh on the market”

Consequently the price of    the    20- year, 10% FGN JULY 2030 bond fell by      N0.67 while the yield rose to 14.33 percent from 14.18 percent. Similarly, the price of the 7-year, 16.00% FGN JUN 2019 bond    fell by N0.14 while the yield rose to 12.74 percent from 12.64 percent. Following the same trend, the price of the      5-year, 14.50% FGN JUL 2021 bond fell by    N0.86 while the yield rose to    14.04 percent from 13.68%.

However the price of the    10-year, 16.39% FGN JAN 2022 bond    rose slightly    by N0.06 and its corresponding yield fell to 13.74 percent    from 13.77    percent.

Commenting on this development, analysts at Lagos based Zedcrest Capital Limited, advised investors to limit their patronage to short tenured bonds.

They said: “The bond market traded on a significantly bearish note in today’s (Friday) session as real money offshore clients cut down on their FGN Bond holdings amidst a global emerging market rout exacerbated by the recent Turkish crisis. Yields have consequently hit an 8-Month high of 14.40 per cent, with significant selloffs witnessed especially on the 2024    to 2036 tenors. The 2027s and 2036s were the most hit, having last traded at 14.55 percent and 14.60 percent respectively.  We expect this trend to persist and advice that clients remain short duration in the near term.

Also reflecting foreign investors apathy to    FGN bonds,  prices    of the FGN Eurobonds traded on the London Stock Exchange    declined further    for all maturities. The 10-year, 6.75% JAN 28, 2021 bond lost    $0.83    while the yield rose to    5.27 percent    from 4.93 percent; The 10-year, 6.38% JUL 12, 2023 note    lost $1.25 while the yield rose to    6.22 percent from 5.92 percent ; The 15-year, 6.50% NOV 28, 2027 also lost $3.06 while the yield rose to    7.52 percent from 7.04 percent.

Meanwhile the Debt Management Office (DMO ) will this week offer N90 billion worth of FGN Bonds to investors. The offer comprise      N25 billion worth of  12.75% FGN APR 2023 (5-Yr Re-opening), N25 billion worth of 13.53% FGN MAR 2025 (7-Yr Re-opening) and N40 billion worth    13.98% FGN FEB 2028 (10-Yr Re-opening).

“We expect the bonds to be issued at higher stop rates in order to attract foreign portfolio investors”, said Cowry Assets analysts.

External reserves drop to 4mth low at $46.7bn

The nation’s external reserves fell    last week for the fifth consecutive week    to $46.701 billion, the lowest in four months.

The Central Bank of Nigeria (CBN) reported that the reserves fell to $46.701 billion last week Thursday from $47.069 billion previous week Thursday, representing weekly decline of $368 million.

Financial Vanguard analysis revealed that the reserves have been falling since Thursday July 5th  when it peaked at $47.798 million.

Since then the reserves have declined by $1.097 billion or 2.3 percent, occasioned by increased foreign exchange intervention by the CBN in its bid to forestall depreciation of the naira in the face of increased dollar demand by foreign portfolio investors exiting the nation’s debt market.

Meanwhile the naira recorded mixed performance in the foreign exchange market last week even as the CBN    increased    its weekly foreign exchange intervention.

While the naira appreciated by 67 kobo in the Investors and Exporters (I&E) window, it depreciated by 70 kobo in the parallel market.

According to, the live exchange rate platform of the Association of Bureaux De Change Operators (ABCON), the parallel market exchange rose to N359 per dollar last week from N358.3  the previous week, translating to 70 kobo depreciation of the naira.

Data    by the FMDQ showed that the indicative exchange rate for the I&E window dropped to N362 per dollar last week from N362.67 per dollar the previous week, indicating 67 kobo appreciation for the naira.

Financial Vanguard analysis also showed that the volume of dollars traded in the window rose by 16 percent last week to $996.73 million from $860.22 million the previous week.

Meanwhile the CBN raised its weekly dollar injection into the interbank foreign exchange market to $537 million while it also sold    69 million worth of Chinese Yuan.

In addition to the weekly $210 million injected on Tuesdays, the apex bank on Friday injected $327 million through the retail secondary market intervention sales (RSMIS).

In a statement announcing the intervention on Friday, Acting Director, Corporate Communications, CBN, Mr. Isaac Okorafor, said: “The Central Bank of Nigeria (CBN), on Friday, August 10, 2018, injected the sum $327.440 million into the interbank retail Secondary Market Intervention Sales. This is in addition to the sale of CNY 69.707 million    in the spot and short-tenored forwards.

“He said that the exercise which was in tune with the CBN guidelines, were for the payment of Renminbi denominated Letters of Credit for agriculture as well as raw materials. He added that the sales in the Chinese Yuan were through a combination of spot and short-tenored forwards, arising from bids received from authorized dealers.”

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