Average Yield Trend 15bps Higher to Settle at 4.0% Ahead of PMA

Monday, March 02, 2020 / 01:28 PM / Afrinvest Research / Header Image Credit: Biz Watch Nigeria

Last week, trading activities in the Nigerian Treasury Bills ("NT-Bills") secondary market began on a quiet note, with pocket-sized demand skewed towards the short-dated bills as investors anticipated the Primary Market Auction ("PMA") slated for Wednesday. However, by the week's end, the interest enjoyed by short-term bills shifted slightly to long-dated maturities - towards the newly issued 1-year bill from the PMA. Despite this slight demand, yields trended higher by 15bps W-o-W to settle at 4.0% from 3.9% the previous week following the debut of these new bills to the secondary market. Particularly, the 15-Oct-20 and 29-Oct-20 maturities improved the most, advancing 28bps and 22bps W-o-W respectively.

At the PMA on Wednesday, the Central Bank's total offer of N104.1bn across the 91-, 182- and 364-day tenors recorded strong demand as anticipated, oversubscribed by 2.5x with a total subscription of N261.5bn. The long-term offer enjoyed the most buying interest, with a bid-to-cover ratio of 3.6x (N52.0bn offered vs. N175.0bn subscribed). Similarly, the short- and mid-dated offers were met with significant demand, oversubscribed by 2.0x and 1.4x respectively. As expected, the Apex bank maintained stop rates across the curve, save for the 364-day tenor which contracted by 84bps to 5.7% from 6.5% at the previous auction.

Please see below PMA results:

The CBN also conducted its customary Open Market Operations ("OMO") auction, mopping up a total of N480.0bn despite the strong liquidity-driven demand (N1.1tn worth of maturing bills flowing into the financial system) as total subscription stood at N545.2bn. In addition, stop rates further contracted across all offers to settle at 11.4% (-1bp), 11.6% (-3bps) and 13.0% (-2bps) on the 89-, 180- and 362-day instruments respectively.

Please see indicative secondary market NT-Bills rates below:

Rates are valid till 01:45pm today (02-Mar-20)

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

This week, we expect to see a cautious start of the week in the OMO secondary market as DMBs recover from the CBN's discretionary CRR debit of c. N700.0bn on Friday while we expect strong activity from offshore players as they take advantage of the more attractive yields in the OMO market. We also anticipate a bullish performance in the NT-Bills secondary market, driven by buoyant system liquidity (N133.6bn positive as at Friday) amidst the absence of primary NT-Bills offers. Thus, we advise investors to take advantage of relatively attractive opportunities along the yield curve, as well as expected Commercial Paper ("CP") offers.

FGN Bonds Update: Bullish Performance Sustained as Average Yield Declines 69bps W-o-W to 9.2%

Contrary to the NT-Bills market, the bonds secondary market performance was bullish as investors focused on the bonds space, resulting from excess matured funds as well as lost bids from the previous week's PMA. However, by the last trading session of the week, there was a halt in this earlier recorded bullish streak as investors across all markets reacted to the Federal Ministry of Health's ("FMH") confirmation of its first Coronavirus case.

Nonetheless, yields plummeted 69bps on the week to close at 9.2% from 9.9% in the previous week. Specifically, the MAR 2025s and 2024s felt the most interest from investors, declining 1.7% and 1.3% W-o-W respectively.

Going into the week, we expect a moderation of activity in the secondary market as investors gauge the true impact of the FMH's discovery. Therefore, we advise investors to source for opportunities in bonds that did not contract the previous week, while retail bond investors can take advantage of the FGN Savings Bond primary offer this week and relatively smaller volumes that may be available in the secondary market.

Please see indicative secondary market bond rates below:

Rates are valid till 01:45pm today (02-Mar-20)

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

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