Economy
Drop in Nigerian Treasury Bills Yield Imminent
By FSDH Research
Yields on the Nigerian Treasury Bills (NTBs), particularly on the 364-day tenor, are likely to drop with the plan of the Debt Management Office (DMO) to refinance the NTBs through foreign debt.
The DMO hinted recently that the Federal Government of Nigeria (FGN) plans to issue about US$3bn in foreign debt of longer tenor, to refinance the domestic debt particularly the high-cost NTBs.
The plan is in line with the debt management strategy of the FGN for 2016-2019, with the overall objective of reducing its total cost of borrowing to achieve the country’s strategic target of an optimal debt mix of 60 percent and 40 percent for domestic and external debts respectively.
The debt management strategy also sets a target of domestic debt mix of 75 percent and 25 percent for long and short-tenored debts respectively.
Our analysis of the data from the DMO on the debt structure of Nigeria as at March 2017 shows that the total public debt stood at N19.16 trillion, made up of N14.93 trillion (78 percent) and N4.23 trillion (22 percent) in domestic and foreign debts respectively.
Although the external debt component at 22 percent as at March 2017 is far from the optimal mix of 40 percent, it is an improvement from 14 percent as at 2013.
If the DMO were to move the debt position as at March 2017 to the planned optimal level, it means that it would have to refinance about N3.43 trillion of the local debt in favour of the external debt.
Thus, we expect the external borrowing to grow faster than the domestic borrowing in the medium to long term.
The FGN’s component of the domestic debt stood at N11.97 trillion as at March 2017. NTB, which is the short-term debt, accounted for 30 percent or N3.60 trillion of the domestic debt of the FGN. This is higher than the target of 25 percent under the debt management strategy, meaning that the FGN could be issuing more of FGN Bonds than NTBs going forward.
This strategy will achieve two things: reduce the weighted average cost of borrowing for the government because the interest rate on the 364-Day NTB is higher than the interest rate on the FGN Bonds; and extend the tenor of the FGN debts.
Many corporate and individual borrowers have criticized the crowding out effect of the NTBs due to their high yields. The average yield on the 364-Day NTB in 2016 stood at 16.15 percent while the average yield between January 2017 and August 2017 stood at 22.91 percent.
From the monetary policy perspective, the high yields may be necessary to tame high inflation and protect the value of the local currency – it however constitutes a drain on the inadequate revenue of the FGN.
The International Monetary Fund (IMF) noted earlier in August 2017 that preliminary data for the first half of 2017 indicates significant revenue shortfalls, with the interest-payments to revenue ratio remaining high, at 40 percent as at the end of June 2017, and projected to increase further under current policies.
The DMO in its 2016 Debt Sustainability Analysis (DSA) report notes that the debt service-to-revenue ratio (for FGN only) breached the country’s specific threshold of 28 percent. The DSA report added that the FGN debt portfolio still remains highly vulnerable to persistent shocks in revenue, indicating a potential challenge in maintaining debt sustainability.
The total amount of debt service in 2016 stood at N1.20trn and represents 58 percent of the federal allocation disbursed to the FGN.
As at March 2017 the total debt service stood at N449 billion representing 82 percent of the total FGN allocation of N549 billion for the period.
We note that FGN revenue has been challenged in the last two years on account of a drop in oil revenue.
Thus, the plan of the FGN is to use the refinancing to lower debt service figures taking advantage of the relatively lower interest rate in the international financial markets. The FGN will have to put in place strategies to manage the currency risks associated with foreign borrowing.
The average yield on the FGN 6.375 percent July 2023 Eurobond from January till August 21, 2017 is 5.94 percent compared with 364-Day NTB of 22.91 percent.
The various efforts of the government should also increase revenue accruable to the country and the FGN.
By Adedapo Adesanya
The Naira recorded a positive performance against the United States Dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Monday, June 15.
At the official FX window, the Nigerian legal tender appreciated against its US counterpart by N7.56 or 0.55 per cent to sell at N1,356.27/$1 compared with the previous session’s N1,363.83/$1.
The local currency also gained N12.39 against the Pound Sterling during the trading day to trade at N1,808.86/£1 versus last Friday’s value of N1,821.25/£1, but shed N2.96 against the Euro to sell at N1,575.85/€1 compared with the previous N1,572.89/€1.
At the GTBank forex desk, the Nigerian Naira depreciated against the greenback yesterday by N2 to quote at N1,373/$1 versus the preceding session’s N1,371/$1, and at the black market, it maintained stability at N1,380/$1.
The pressure on the Naira has remained calm, as Nigeria’s gross external reserves surged to $50.505 billion, the highest since January 2009, driven by inflows from oil sales, affirming expectations that the local currency will remain along a stable band.
Meanwhile, the headline inflation rate rose to 15.93 per cent in May 2026, extending the upward trend recorded since the beginning of the year, according to the latest data released by the National Bureau of Statistics (NBS). The figure shows an increase from the 15.69 per cent recorded in April, indicating that prices of goods and services continued to climb despite a slower monthly rate of inflation.
The NBS said the latest figures suggest that while prices are still rising, the rate of increase has moderated from the previous month, largely impacted by the war in the Middle East, which drove up fuel prices.
In the cryptocurrency market, top benchmarked coins reversed early losses after the Bank of Japan raised interest rates to a 31-year high in its fight against inflation.
There had been profit-taking across the board as traders waited for Iran’s signing after US President Donald Trump and Vice President JD Vance signed an electronic copy of a memorandum of understanding. President Trump said the Strait of Hormuz, already partially open, will fully reopen on Friday.
Ripple (XRP) soared by 3.7 per cent to $1.22, Solana (SOL) grew by 3.6 per cent to $73.82, Ethereum (ETH) jumped by 2.7 per cent to $1,765.24, and Bitcoin (BTC) gained 0.7 per cent to trade at $66,191.45.
On the flip side, Cardano (ADA) slid 1.9 per cent to $0.1776, Dogecoin (DOGE) expanded by 1.7 per cent to $0.0874, TRON (TRX) slumped by 0.8 per cent to $0.3180, and Binance Coin (BNB) declined by 0.6 per cent to $614.10, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) traded flat at $1.00 each.
By Dipo Olowookere
Weak investor sentiment sliced 0.63 per cent from the Nigerian Exchange (NGX) Limited on Monday, the first trading session after a one-day break last Friday for Democracy Day celebration in Nigeria.
The stock market came under selling pressure yesterday, leaving all the major sectors of the bourse facing southwards.
The energy index shed 3.20 per cent, the banking space lost 1.17 per cent, the insurance counter declined by 0.68 per cent, and the consumer goods sector crumbled by 0.39 per cent, while the industrial goods segment closed flat.
Consequently, the market capitalisation decreased by N844 billion to N156.126 trillion from N156.970 trillion, and the All-Share Index (ASI) contracted by 1,316.40 points to 243,422.34 points from 244,738.74 points.
International Energy Insurance gave up 9.99 per cent to trade at N6.40, eTranzact crashed by 9.97 per cent to N14.90, Abbey Mortgage Bank lost 9.65 per cent to finish at N10.30, Oando dropped 9.43 per cent to quote at N48.00, and NAHCO tumbled by 9.19 per cent to N163.00.
On the flip side, Royal Exchange appreciated by 10.00 per cent to N1.65, Ikeja Hotel moved up by 9.97 per cent to N47.45, Neimeth improved by 9.94 per cent to N9.40, Consolidated Hallmark gained 9.58 per cent to sell for N9.04, and University Press climbed 9.09 per cent to N6.00.
Yesterday, market participants traded 569.1 million shares valued at N31.4 billion in 77,652 deals compared with 1.7 billion shares worth N52.8 billion exchanged in 49,807 deals in the preceding session, showing a rise in the number of deals by 55.91 per cent, a tightening in the trading volume by 66.52 per cent, and a shrinkage in the trading value by 40.53 per cent.
Sterling Holdings was the busiest stock on Monday with a turnover of 103.0 million units worth N805.5 million, GTCO exchanged 41.3 million equities for N5.6 billion, FCMB traded 37.9 million shares for N433.7 million, Access Holdings sold 27.3 million equities worth N666.0 million, and UBA transacted 20.4 million stocks valued at N877.3 million.
By Adedapo Adesanya
The oil market went down by $4 a barrel to a three-month low on Monday after President Donald Trump said the United States and Iran have signed a memorandum of understanding aiming to end the Iran war and reopen the Strait of Hormuz.
Brent crude futures declined by $4.16 or 4.76 per cent to $83.17 a barrel, and the US West Texas Intermediate (WTI) crude futures shed $4.13 or 4.87 per cent to sell for $80.75 a barrel.
The US and Iran reached a deal to reopen the Strait of Hormuz, though analysts voiced caution over the agreement’s prospects. According to reports, the MoU has been signed by President Donald Trump, Vice President JD Vance and Iranian Parliament Speaker, Mr Mohammad Bagher Qalibaf.
Pakistan and Qatar, the two lead mediators in the deal, also confirmed the agreement, while an official signing ceremony for the agreement is due to be held on Friday in Geneva.
Reuters reported that the draft deal called for reopening the Strait of Hormuz within 30 days under Iranian arrangements, while President Trump said ships could traverse the waterway within days and would not be charged a toll.
Market analysts noted that the deal and the potentially imminent reopening of the Strait of Hormuz do not mean that the oil and gas trade will quickly return to its previous levels. The announcement of the deal is just the first step, and it could take months for oil and gas shipments in the region to return to pre-war levels.
The world has lost millions of barrels of oil and gas supply since the war closed the Strait of Hormuz, a chokepoint for a fifth of the world’s oil and liquefied natural gas supplies, for more than three months.
According to the International Energy Agency (IEA), more than 14 million barrels per day of oil output is shut, equivalent to about 14 per cent of world demand. It is unclear how quickly those barrels will return to market once the waterway is opened.
E4 nations, which include the United Kingdom, France, Germany and Italy, said on Sunday that the countries were prepared to lift sanctions on Iran in response to steps on its nuclear programme.
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