Parthian Partners Released Fixed Income Report for Q1-2022

Macro-Economic Overview

  • – Inflation eased slightly into 2022 – 15.60% in January (15.63% in Dec’21), but inclined in February to 15.70%, majorly spurred by the fuel scarcity experienced.
  • – The Monetary Policy Committee held Monetary Policy Rate (MPR) and other parameters constant in the two (2) meetings held during the quarter.
  • – Oil prices averaged c.$97/barrel through the quarter, hitting a low of $78/barrel at the beginning of the year on the back of the potential impact of the Omicron variant and peaking at $127/barrel due to the Russia/Ukraine crisis.
  • – FX Reserve stood at c.$39bn as at the end of Q1, c.$1bn decrease from the start of the quarter.
  • – Interbank system liquidity for the quarter averaged c.N253bn, closing the quarter at c.N391bn
  • – FAAC inflows summed up to c.N1.16trn in the first two months of the quarter (c.N574bn disbursed in Jan’22 and c.N590bn in Feb’22).
  • – Government net local borrowing YTD stood at c.N901bn raised via local borrowings (N278b from NTBs and N624b from bonds)
  • – Coupon payments amounted to c.N632bn in Q1, in addition, there was a c.N605bn bond maturity and c.N714bn in NTB maturities.

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Bond Market Bullish sentiments commenced the quarter on the back of the c.N605bn bond maturity in January. Significant coupon payments through the quarter sustained the bullish run as participants looked to re-invest their excess funds with interests seen majorly on the short to mid end of the bond curve. Yields across board dipped through the quarter by an average of c.108bps.

Treasury Bills Market Q1 was largely bullish in the Treasury bills space, albeit a bit of resistance was seen in the secondary market as the long end started trading sub 4% levels. Despite the declining stop rates at the NTB auctions, the auctions were heavily subscribed (average of 4.00 subscription ratio) save for the last auction. The Special Bills remained bid for most of the quarter as players sought better yields in the secondary market with the April/May maturities enjoying the most activity. The limited supply amid significant liquidity drove a bullish bias in the OMO space through the quarter. This bias reflected in the OMO auction even though the CBN continued to offer lower than maturities for every week with no change in stop rates through the quarter.

Eurobond Market The SSA Eurobond market commenced the first quarter of the year with mild bullish sentiments on the back of reduced omicron fears and increasing oil price. This trend was quickly reversed as driven by 3 major factors:

US Fed’s hawkish stance and rate hike plans The plan of the US Fed, led by Chairman Jerome Powell to hike rates aggressively this year led to the selloff of the papers of emerging markets including sub-Saharan African economies. US inflation data release The release of the US’ consumer price index data for December 2021, January and February 2022 at 7.00%, 7.50% and 7.90%, respectively – all record highs, also drove bearish sentiment in the SSA Eurobond market. Escalation of the Russia-Ukraine war As events on the Eastern Europe front continued to escalate during the quarter, global risk-off sentiment was triggered, leading to the selloffs of risky asset, including the Eurobond papers of the SSA market.

Despite these three major factors, brief periods of respite, albeit momentarily, were recorded during the quarter where investors pick up attractive offers in the space. This was driven by the rally of crude oil prices, from the year opening at c.$80/b and reaching an intra-day high of $139/b.

 

Country event 

Nigeria
The debt management office of Nigeria tapped into the international market to raise $1.25billion on a 7-year paper at a yield of 8.375%.  This contributed to a downward repricing of the Nigerian sovereigns during the quarter. 

Ghana
The Ghana curve opened the year with a downgrade of the country’s credit rating, which led to a downward repricing of the Ghana papers. This was followed by series of events to improve Ghana’s fiscal position, in order to restore investor confidence. 

Kenya 
Kenya inflation hits a 16-month low at 5.10%, which is well within the 2.5 – 7.5% target set by the central bank. This demonstrates the resilience of the largest East Africa economy amid external pressures like import costs and the surge in prices driven by the Russia-Ukraine crisis. 

Zambia 
Zambia, on track to complete its $1.4bn IMF bailout in the second quarter of 2022, recorded a 2-year low inflation rate at 13.1%, as the monetary authority projects inflation rate to settle within 6% and 8% within the next eight quarters.

 

In Q2 2022…
In the Bond space, we expect a choppy market as the DMO oversold at all the auctions during the quarter; activity will most likely be skewed to the bonds offered at the auctions. We expect yields to trend upwards in the treasury bills and bond market, due to the projected dearth of liquidity in the second quarter of 2022, in comparison to Q1.In the SSA Eurobond space, we expect continued volatility, as global sentiment remains weak.