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JP Morgan: FMDQ intervenes in bond market, stocks continue decline

By on September 12, 2015

Bond yields declined on Thursday, reflecting a rise in value as markets continued to react to the plan by JP Morgan to remove Nigerian government bonds from its Government Bond Index-Emerging Markets (GBI-EM) by October ending.

The drop in bond yields was attributed to the intervention by FMDQ OTC in the fixed income securities market.

FMDQ, which is the Nigerian bond market regulator comprising the main commercial banks and the Central Bank of Nigeria (CBN), widened the bid-ask spreads on bond trading to N1.00 from 0.30 kobo to contain volatility, helping to moderate a debt market sell-off.

The Managing Director of FMDQ, Mr. Bola Onadele, who confirmed the widening of the bid-ask spreads to THISDAY in a telephone interview said: “Without it, the market would have frozen and there would have been no offer for quotes. We have done the best thing in terms of risk management.”

To this end, the yield on the April 2017 Federal Government of Nigeria (FGN) bond dropped to 16.16 per cent yesterday, from 16.53 per cent the previous day.

Similarly, the yield on the June 2019 bond dropped to 16.33 from 16.68 per cent the previous day, while the yield on the February 2020 bond fell to 16.21 per cent from 16.41 per cent on Wednesday.

The naira, on the other hand, maintained its previous day’s value of N223 to a dollar on the parallel market in Lagos yesterday.

But the equities market continued to inch southwards, with the Nigerian Stock Exchange (NSE) All-Share Index  (ASI) declining by 0.27 per cent to close at 29,403.12, while market capitalisation shed N10.3 billion to close at N10.1 trillion.

According to Reuters, stock market investors were said to have dumped their shares over fears that Nigeria might also be evicted from the MSCI frontier index and dollar shortages would make it hard to exit the market.

“Sooner or later, equity investors will wonder whether this could also lead to action by MSCI,” Renaissance Capital said in a note yesterday.

Nigerian stocks were among the worst performers on the MSCI frontier market index for a second day.

In the Banking Sector Index, FBN Holdings fell the most, dropping 4.98 per cent. Access Bank fell 4.9 per cent, Union Bank of Nigeria 4.24 per cent and United Bank for Africa 4.11 per cent.

Also, in another attempt to reduce naira speculation, Reuters reported that the central bank reduced the time limit for funding currency purchases to 24 hours from 48 hours to stem the surge in demand for dollars, dealers said.

Commenting on the latest move by the CBN, Ayodeji Ebo, Head of Research at Afrinvest, said investors were increasingly concerned over whether the $31.5 billion in foreign reserves was enough to allow the central bank to meet rising dollar demand.

“The central bank’s ability to defend the naira may be hampered, hence a devaluation may be inevitable. Foreign investors exposed to Nigerian equities will prefer to exit positions ahead of any official devaluation,” Ebo of Afrinvest said.

 

[ThisDay]