MPC policy decisions, FAAC allocation to keep rates moderate

There are high expectations that there will be moderation in interbank rates, from expected Federation Accounts Allocation Committee (FAAC) disbursements, just as the decisions of the Monetary Policy Committee(MPC) decisions tomorrow will influence market pricing of T-bills.

Dealers at two investment research and securities company, Cowry Assets Management Limited and Afrinvest (West) Africa Limited said in their notes to investors that: “In the week ahead, MPC’s policy decision at Tuesday’s sitting will influence market pricing of T-bills. Barring any OMO auction, money market rates are expected to hover around current levels.

“This week,we anticipate ease in financial system liquidity,and resultant moderation ininterbank rates,from expected Federation Accounts Allocation Committee (FAAC) disbursements.”

Also, dealers expect activities to remain soft in the local bonds market in sessions ahead with yields trending higher.

Contrary to bearish sentiment across Sub-Saharan African sovereign Eurobonds in previous week, performance was broadly positive last week as the instruments pared previous week’s losses following improved buying interest in high yield Eurobond debt securities.

Yields fell on all Sub-Sahara Africa (SSA) Eurobonds within coverage but for South African Eurobond instruments which remained under selling pressure due to speculations that the Country’s credit rating would be downgraded to junk status by S&P Ratings. Average yield on all South African Sovereign debts rose 32bps W-o-W on average.

Earlier in the week, Federal Reserve Chair Janet Yellen signaled an interest rate hike which puts a halt to speculations surrounding interest rate outlook. With the anticipation of a rate hike by the US Fed by December, Afrinvest expect this bullish trend to be short-lived.

It was a bearish week for Nigerian corporate Eurobonds as yields rose on all instruments save for the FIDELITY 2018 (down 0.1% W-o-W) and the DIAMOND 2019 (down 1.1% W-o-W) bonds. The GUARANTY 2018 still has the highest YTD return of +7.5per cent with the ZENITH 2019 lagging behind with YTD return of +6.6per cent. DIAMOND 2019 Eurobond remains the worst performing instrument with YTD loss of 6.1per cent.