Alternative Investment Options Spur Bearish Sentiments as Average Yield Advances to 3.9% WoW

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Monday, February 10, 2020   /12:03 PM  / By Afrinvest Research / Header Image Credit:  LPC Advisors

 

Last week's performance in the Nigerian Treasury Bills ("NT-Bills") secondary market was bearish, as investors shied away from the low yield environment in the NT-Bills space to take position in the relatively attractive FGN promissory notes and commercial paper issuances. Thus, average yield climbed 12bps to settle at 3.9% W-o-W. Major sell-offs were witnessed on the 27-FEB-20 (+140bps) and 12-MAR-20 (+94bps) instruments while the 30-APR-20 (-76bps) maturity enjoyed the most buying interest.

 

In addition, OMO maturities worth N349.0bn hit the financial system last week and the Apex bank intervened through its customary OMO auction. Instruments worth N150.0bn were offered across the 82-, 180- and 362-Days in order to mop up system liquidity. As seen in recent times, there was "no sale" on the short tenor bill while the mid and long dated bill recorded a total sale of N128.2bn putting subscription level of 2.0x and 0.8x respectively. Thus, clearing rate settled at 11.60% and 13.05% respectively.

 

This week, the Apex bank is scheduled to roll over maturing bills worth N154.4bn through the Primary Market Auction ("PMA") across the 91 (N 4.4bn), 182 (N 10.00bn) and 364-Day (N 140.0bn) tenors.

 

Please see below our PMA expectations

TENOR

91- DAY

182 - DAY

364 - DAY 

Offer Amount

4,384,180,000

10,000,000,000

140,000,000 ,000

Last Stop Rate

3.50%

4.50%

6.50%

Expected Stop Rate Range(%)

3.45% - 3.65%

4.40% - 4.60%

6.00% - 6.50%

 

This week, we expect a combined maturity value worth N595.3bn from OMO (N440.9bn) and NT-Bills (N154.4bn) to hit the financial system. Hence, we expect the CBN to intervene by mopping up excess liquidity via an OMO auction. We believe yields in the NT-Bills space may sustain its bearish stance from last week as investors may seek higher yields from the PMA and alternative investments given the low yield environment. We advise risk-averse investors to cherry pick bills with attractive yields.

 

Please see indicative secondary market NT-Bills rates below:

Maturity

Tenor (Days)

Rate (%) p.a.

Yield (%) p.a.

12-Mar-20

31

2.00

2.00

14-May-20

94

2.65

2.67

13-Aug-20

185

3.60

3.67

15-Oct-20

248

4.40

4.54

14-Jan-21

339

5.00

5.24

Rates are valid till 01:45pm today (10-Feb-2020)

*Please note that the minimum subscription for T-Bills is N100,000.00

 

FGN Bonds Market Update: CRR Debit Causes the Bears to Resurface as Average Yield Rises 15 bps WoW

Activities in the domestic bonds market mirrored happenings in the NT-Bills market, as the CRR debits by the Apex bank last week contracted banks' liquidity. Although, there was an inflow from OMO maturities into the system during the week, this was unable to offset the impact the CRR debits. Hence, the bears took the center stage. Consequently, average yield rose by 15 bps to settle at 9.7% W-o-W.

 

The 13-FEB-20 (+185bps) suffered the most sell-offs as it approaches maturity, trailed by 15-JUL-21 (+27 bps). Conversely, the 27-JAN-22 (-20 bps) enjoyed the most buying interest.

This week, we anticipate an increased level of demand in the bonds market following an expected improvement in system liquidity coming from OMO and NT-Bills maturities, as well as the FGN bond coupon payment. We expect investors continuous bargain for high yielding assets to reinvest matured funds while awaiting the FGN bonds auction next week. Thus, investors are advised take advantage of instruments with attractive yield.

 

Please see indicative bond rates below:

Bond

Tenor (Years)

Yield (%)

Coupon (%)

Implied Price (N)

Jul-21

2

6.35

14.50

110.95

Jan-22

3

6.40

16.39

118.14

Apr-23

4

8.25

12.75

112.43

Mar-24

5

8.90

14.20

117.83

Mar-25

6

9.30

13.53

116.89

Jan-26

7

9.25

12.50

114.60

Mar-27

8

9.70

16.29

133.22

Feb-28

9

10.05

13.98

121.30

Jul-34

15

10.55

12.15

111.71

Mar-36

17

10.47

12.40

114.84

Apr-37

18

10.43

16.25

146.03

Apr-49

30

11.67

14.80

125.79

Rates are valid till 01:45pm today (10-Feb-2020)

*Please note that the minimum subscription for T-Bills is N20,000,000.00

 

Proshare Nigeria Pvt. Ltd.


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Proshare Nigeria Pvt. Ltd.


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