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Average T-Bills Rates Settle at 11.5% as T-Bills PMA and FGN Bond Auction Hold this Week

Bonds & Fixed Income	3845 VIEWS
Bonds & Fixed Income
3845 VIEWS

Monday, August 13, 2018 / 4:30PM / Afrinvest

The T-Bills market was largely quiet last week on the back of sell offs particularly at the mid-long end of the curve as investors anticipated an OMO auction with more attractive yields by the Apex bank. Consequently, average rates across tenors inched 22bps higher to close the week at 11.5%. The bearish sentiment was further strengthened at mid-week as investors reacted to the negative headlines of domestic political proceedings. As a result, yields advanced across the short, medium and long-term tenors particularly the 23-Aug-18 (+78bps), 25-Oct-18 (+38bps) and 03-Jan-18 (+14bps).

In its customary quest to mop up excess system liquidity (N641.0bn as at Thursday), the CBN conducted an OMO auction offering N450.0bn for the 91 and 203-day tenors respectively. While the shorter end was 72.6% under-subscribed (N100.0bn offered vs. N27.4bn subscription), the longer tenor was 99.9% subscribed (N350.0bn offered vs. N349.6bn subscription) as a result of a better yield on the 203-day maturity compared to yields on the long-term T-Bills secondary market instruments.

Please see indicative rates for today below:

Maturity	Tenor (Days)	Rate (%) p.a.	Yield (%) p.a.
20-Sep-18	38	8.10	8.17
01-Nov-18	80	9.40	9.60
13-Dec-18	122	10.90	11.31
31-Jan-19	171	11.10	11.71
21-Feb-19	192	11.20	11.90
OMO Auction	203	11.30	12.09

A Primary Market Auction (‘’PMA”) is slated to hold on Wednesday with the CBN offering N33.4bn across the 91, 182 and 362-day maturities. In addition to the maturing T-Bills of N33.4bn. Additionally, an injection of N440.0bn from OMO maturities is expected to boost system liquidity. This week we expect to see more activities in the T-Bills market particularly at the longer-end of the curve at the PMA and anticipate an excess system liquidity mop-up by the Apex bank towards the end of the week.

Please see our expectations for the PMA below:

Tenor	Amount on Offer	Previous Stop Rate	Expected Stop Rate
91 days	N3.38bn	10.0000%	10.0000%-10.1000%
182 days	N10.00bn	10.4000%	10.3000%-10.3500%
364 days	N20.00bn	11.3000%	11.2000%-11.4000%

FGN Bonds Market Update: Off-Shore Investors Sell-off amidst Political Tensions, Bond Auction Slated for Wednesday

Last week, the bullish sentiment in the domestic bonds market was reversed as investors sold off their positions on the back of negative political headlines towards mid-week. Major sell-offs were witnessed on the 2027 (+48bps) and 2036 (+25bps) instruments Consequently, average yields across all instruments advanced 27bps to close at 13.77%.

Due to the Muslim holidays, the DMO moved the bonds auction previously slated for August 22^nd forward to August 15^th with a total of N90.0bn on offer- N25.0bn apiece of the APR-2023 and MAR-2025 maturities and N40.0bn of the FEB-2028 maturity.

Please see indicative bond rates for today below:

Bond	Tenor (Years)	Yield (%)	Coupon (%)	Implied Price (N)
Feb-20	2	13.15	15.54	103.16
Jul-21	3	13.70	14.50	101.84
Jan-22	4	13.80	16.39	106.91
Mar-24	6	13.95	14.20	100.91
Jan-26	8	14.45	12.50	91.26
Mar-27	9	14.40	16.29	109.11
Jul-34	16	14.50	12.15	85.51
Mar-36	18	14.35	12.40	87.56
Apr-37	19	14.40	16.25	111.83

This week, we expect to see bargain hunting by investors particularly on instruments with lower prices and higher yields and also anticipate a bullish performance at the FGN bonds auction slated for Wednesday (where the DMO will re-issue 12.75% FGN APR 2023, 13.53% FGN MAR 2025 and 13.98% FGN FEB 2028) on the back of a boost in system liquidity.