The Week that was (September 6-10)
1-yr NTB paper hits 10%, the beginning of the end? In a surprise move, the DMO raised the stop-rate on the 1-year NTB tenor by 150bps to 10% (effective yield: 11.1%). Though markets have been tight and the DMO had relied on a helping hand from the CBN it had now become clear that debt markets were no longer going to play the dumb game of single digit T-bill yields when every other instrument at the segment was in double digits. To raise its borrowing needs, the DMO would need to raise rates which it duly delivered. The question is now whether markets can push their luck further at the next auction? The immediate implication of the rising short-term rates is that longer-dated bond yields will need to adjust with the nearest on-the-run paper (FGN 2025) now hugging 13%.
DMO switches lanes on issuance, swaps 20-year with 15-year: The DMO made minor adjustments to the bond issuance calendar by withdrawing the FGN 2042 (benchmark 20-year bond) earlier slated for sale in September and re-introduced the FGN 2037 (15-year bond) which likely reflects maturity management as the outstanding size of the 2042 was now over NGN1.1trillion. This had a bullish effect on debt markets as short positions on the 2042 scrambled to cover their positions in the absence of a primary market window for supply. This had the effect of driving bullish sentiments in bonds ahead of a pick-up in system liquidity from bond coupons over September (NGN340billion).
Nigeria’s oil production falls to 1.1mbpd in August as Forcados goes offline for repairs: Data from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) shows a 10% drop in Nigeria’s oil output to 1.2mbpd which is the lowest levels going back to the 1990s. Adjusted for condensates, the crude portion fell under 1mbpd which wide segments of the Nigerian media have conveniently preferred to report as ‘oil production’. Anyway, the major pressure point stemmed from the Forcados export terminal where production averaged 16.3kbpd (down from 144.3kbpd in July) following repairs in early August by Shell (which operates the terminal) to a critical subsea hose after the appearance of a ‘sheen’ in the vicinity. The Forcados outage weighed on onshore production governed under the Joint-Venture (JV) arrangement, which I estimate fell to 430kbpd over the month from 610kbpd in July. Nigeria’s onshore production is exported via four major export terminals: Qua Iboe, Bonny, Brass and Forcados and trunklines feeding the latter three (located on the Western Axis of the Niger Delta) have suffered from significant outages/disruptions linked to theft. As such output along these three terminals remain significantly (90%) below peak output levels in January 2020.
Figure 1: Nigeria Oil Production – Regime
The Week Ahead (September 12-16)
In the week ahead, system liquidity is likely to pick-up with inflows across FGN bond coupons (NGN128billion), NTB maturities (NGN160billion) and OMO maturities (NGN35billion). There will be an NTB auction on Wednesday where the CBN, on behalf of the DMO, will look to refinance the maturing NTBs and markets are likely to test the DMO on the 1-yr tenor.
August inflation likely cleared 20%: The NBS is set to release the August CPI report which will likely show that headline inflation tested new highs hitting the 20.4%-20.5% region with the m/m print in the 1.7-1.75% region. Maize prices have started to recede as early harvests filter through though wider commodity prices will remain dislocated given insecurity issues across the north, lingering transport pass-through effect and the currency dynamic in domestic pricing.