Outlook and Yield Direction

May 2018
Indices Present Situation Expected for May Expectations Rate Direction Weight (100)
Inflation Low Lower 10.97% +/-10bps 5
GDP Growth Rate Low Positive 1.92% +/-20bps 10
Reserve Level High Positive $48.55bn +/- $400m 10
Political Stability Neutral Rising Rising 10
Market liquidity Positive Positive N145bn +/- N50bn 5
Crude Oil prices High Neutral $75+/- 5 15
FPI Inflow Poisitive Lower $1.2 billion +/- $200m 20
Fed Rate Rising Neutral 2.00% +/- 0.25% 15
Geopolitical Policies Rising Higher 6 +/- 0.5 10

Yield Direction for May 2018

The table above indicates improving trend in key factors for rate movement downwards. With the anticipation of continued decline in headline inflation and possible easing of monetary policy later in the year, this is expected to keep rates and yield levels in the fixed income low.

Yield Direction for May 2018

While we see the CBN loosening its current monetary policy stance to an accommodative one in 2018, we do not anticipate this at the next MPC meeting in May. We also expect the interventions in the FX market to be sustained. Inflows from OMO maturities, bond coupons and FAAC distributions would provide bigger respites for rates, matched with government’s low appetite for high cost debt. As the DMO continues to push for lower rates in the fixed income market, with possible alignment of the CBN’s monetary policy, we expect to see high demand in May. We also expect T-Bills rate levels at the PMAs to remain below 13% levels, as well as yield levels at the long end, to hover 12% – 13.5%.