Average Yield Dips Marginally to 3.9% Amidst Oil Price Decline

Proshare

Monday, March 16,  2020 /12:54 PM / By Afrinvest Research / Header Image Credit: Investopedia 

 

Last week, the Nigerian Treasury Bills ("NT-Bills") market started off with panic sell-offs across the yield curve as investors reacted to the slump in oil prices amidst the global outbreak of COVID-19. Sell-offs persisted into the third trading session, albeit less aggressive, with investors trading cautiously ahead of the Primary Market Auction ("PMA"). However, on Thursday, pockets of unfilled bids filtered into the market owing to improved system liquidity from OMO maturities (N223.7bn) coupled with no OMO auction sales by the CBN. Most of the demand were skewed to medium term maturities, particularly the 12-Nov-20 (-81bps), 29-Oct-20(-63bps) and 15-Oct-20(-63bps) instruments. As a result, average yield across tenors dropped marginally to 3.9% from 4.0% the previous week.

 

At the PMA, the Apex bank's total offer of N86.3bn across the 91-,182- and 364-day tenors witnessed strong demand of N243.4bn, translating to a bid to cover ratio of 2.8x. All tenors were oversubscribed with the short-term instrument enjoying the most buying interest at a bid-to-cover ratio of 13.2x (N1.8bn offered vs. N23.7bn subscribed). However, the CBN only allotted the total amount offered across all tenors. Due to the oversubscription, stop rates on all instruments declined.

 

Please see a detailed summary in the table below:

Auction Date

11-Mar-20

11-Mar-20

11-Mar-20

Allotment / Issue Date

12-Mar-20

12-Mar-20

12-Mar-20

Tenor

91-Day

182-Day

364-Day

Offer Amount (N)

1,800,000,000

14,002,523,000

70,501,216,000

Total Subscription (N)

23,773,125,000

29,458,931,000

190,232,341,000

Allotment (N)

1,800,000,000

14,002,523,000

70,501,216,000

Range of Bid Rates (%)

2.4500 - 6.8799

3.4880 - 5.5000

4.5000 - 15.4875

Stop Rates (%)

2.4900

3.7800

5.3000

Previous Stop Rates (%)

3.0000

4.0000

5.7000

Bid-to-Cover Ratio

13.2x

2.1x

2.7x

Allotment Ratio

0.1x

0.5x

0.4x

 

This week, system liquidity is expected to be bolstered by inflows from OMO maturities worth N304.8bn and we expect the CBN to conduct an auction to mop up excess liquidity. In addition, the CBN is expected to conduct another PMA on Wednesday rolling over a total of N47.6bn.

 

Please see details of this week's Primary Market Auction below:

Tenor

91-Day

182-Day

364-Day

Offer Amount (N)

2,000,000,000

8,390,000,000

37,180,000,000

Last Stop Rate (%)

2.4900

3.7800

5.3000

Expected Stop Rate Range (%)

2.4500- 2.5000

3.7000-3.9000

5.2500-5.5000

 

 

We expect the market to open on a quiet note as investors' wait on the side-lines ahead of the PMA and release of the February Inflation data. Nevertheless, we anticipate improved demand given the level of system liquidity (c. N692.0bn as at Friday) as well as limited alternative options. Thus, we advise investors to trade cautiously while taking advantage of attractive opportunities along the yield curve, as well as expected Commercial Paper offers.

 

Please see indicative secondary market NT-Bills rates below:

Maturity

Tenor (Days)

Rate (%) p.a.

Yield (%) p.a.

30-Apr-20

45

2.00

2.00

14-May-20

59

2.40

2.41

13-Aug-20

150

3.60

3.65

12-Nov-20

241

4.20

4.32

14-Jan-21

304

4.50

4.68

Rates are valid till 01:45pm today (16-Mar-2020)

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

 

FGN Bonds Update: Crash in Oil Prices Triggers Sell-Offs as Average Yield Expands by 140bps

 

In the bonds market last week, performance was significantly bearish as average yield expanded by 140bps to 11.7% from 10.3% the previous week.  The aggressive sell-offs witnessed across the yield curve was majorly driven by foreign investors on the back of the unexpected decline in oil prices to $32.0 per barrel on Monday. Specifically, sell-offs were intensified across the short and mid-term instruments such as the 17-Mar-27 (+345bps), 22- Jan-26 (+242bps) and 27-Jan-22 (+238bps) maturities.

 

Furthermore, the Debt Management Office (DMO) revised its bond issuance calendar for the first quarter of the year. The Apr 2029 (Reopening) and Apr 2049 (Reopening) were replaced with new issues of 15-year and 30-year tenors thereby reducing the amount it plans to raise by N100 billion.

 

Going into the week, we expect the bearish momentum to be sustained as concerns over rising shocks to Nigeria's economy impacts sentiments, notwithstanding the anticipated coupon payments on 14-Mar-2024,17-Mar-2027 and 18-Mar-2036 FGN bonds. Investors are advised to trade cautiously while bargain hunting for bonds with attractive yields.

 

Please see indicative secondary market bond rates below:

Bond

Tenor (Years)

Yield (%)

Coupon (%)

Implied Price (N)

Jul-21

2

6.40

14.5000

110.17

Jan-22

3

5.90

16.3900

118.26

Apr-23

4

8.90

12.7500

110.25

Mar-24

5

9.40

14.2000

115.68

Mar-25

6

10.70

13.5300

110.77

Jan-26

7

11.55

12.5000

103.93

Mar-27

8

12.55

16.2884

117.09

Feb-28

9

12.60

13.9800

106.78

Jul-34

15

11.80

12.1493

102.35

Mar-36

17

12.20

12.4000

101.39

Apr-37

18

12.00

16.2499

130.55

Apr-49

30

13.10

14.8000

112.61

Rates are valid till 01:45pm today (16-Mar-2020)

*Please note that the minimum subscription for Bonds is N20, 000,000.00

 

Proshare Nigeria Pvt. Ltd.


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