October has witnessed the most extraordinary level of turnover, price performance and market speculation in FBN Holdings shares. We will not repeat the market speculation here, though in recent weeks, newspapers have carried stories of stake-building, which are helpful. The fundamental value of the stock, in our view, has not changed, so last week (20 October) we downgraded it from a HOLD to a SELL. See pages 2 and 3 for details. 

FX

Last week, the exchange rate at the Investors and Exporters Window (I&E Window) was flat at N415.07/US$1. The Central Bank of Nigeria’s (CBN) foreign exchange (FX) reserves rose by 3.38% to US$40.96bn, the highest level since 17 October 2019 and signifying its ninth consecutive weekly accretion. In our view, this reflects the US$3.50bn International Monetary Fund's (IMF) Special Drawing Right (SDR) allocation to Nigeria and the FGN’s issues of US$4.00bn in Eurobonds last month. Nevertheless, FX turnover on the official markets remains low in comparison with levels seen in previous years. Our view remains that there may be continued pressure on the official and parallel exchange rates if the CBN does not increase supply. 

BONDS & T-BILLS 

Last week, activity in the Federal Government of Nigeria (FGN) bond secondary market closed bearish, as market players reacted to the rise in yields at the bond Primary Market Auction (PMA). Consequently, the average benchmark yield for bonds rose marginally (+6bps) to 11.38%. On benchmark notes, the yield of the 10- year (+10bps to 12.07%) and 3-year (+2bps to 9.22%) FGN Naira-denominated bonds expanded. 

However, the yield of the 7-year bond was flat at 11.71%. At the PMA, the Debt Management Office (DMO) allotted N191.39bn (US$465.67m) worth of bills to investors. The marginal yield on the January 2026 bond settled at 11.65%, the yield on the April 2037 bond settled at 12.95%, while the yield on the March 2050 bond expanded by 20bps to 13.20%. Demand at the auction was weak, as a total subscription of N250.71bn – lowest since February 2021 - was recorded, implying a bid-to-offer ratio of 1.67x (versus an average of 2.01x at prior auctions in 2021). Nevertheless, we reiterate our expectation that a future rise in bond yields, if any, is unlikely to be sharp over the coming months due to unaggressive borrowing as the DMO manages its debt service costs.

READ MORE HERE