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Bullish Run Extends to Fourth Consecutive Week as Average Yield on NT-Bills Dips to 7.3%

Bonds & Fixed Income	711 VIEWS
Bonds & Fixed Income
711 VIEWS

Monday, December 09, 2019 / 12:42 PM / by Afrinvest Research / Header Image Credit: UBA

Last week, performance in the Treasury Bills market was mixed albeit slightly bullish as offshore investors sold off their NT-Bills ahead of OMO auction due to the yield differentials, while local demand was buoyed by improved system liquidity (c N400.0bn from maturing OMO and NT-Bills instruments). While average yield on short-term NT-Bills maturities expanded by 75bps due to sell offs, average yield on the medium- and long-term tenors shed 38bps and 28bps respectively due to demand particularly on the 30-Apr-20 (-225bps) and 17-Sep-20 (-113bps). Consequently, average NT-Bills yield across all tenors marginally dipped by 1bp to close at 7.3% on Friday.

On Thursday, the CBN conducted an OMO auction offering N400.0bn across the 96-day (N50.0bn), 187-day (N100.0bn) and 362-day (N250.0bn) to absorb liquidity following N344.9bn OMO inflows on the same day. As with the previous week, subscription was underwhelming at 0.02x and 0.8x for the 96-and-362-day tenors while there was no sale on the 187-day OMO. Overall, the CBN sold N190.8bn worth of instruments across the 96-and-362-day windows at marginal rates of 11.5% and 13.3% respectively.

Going into the week, the CBN is expected to conduct a Primary Market Auction on Wednesday rolling over a total of N45.0bn according to the first quarter calendar issued last week. We expect to see more investors position at the longer end of the curve.

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

Tenor	91-Day	182-Day	364-Day
Offer Amount (N)	5,000,000	10,000,000	30,000,000
Last Stop Rate (%)	6.4950	7.2300	8.3700
Expected Stop Rate Range (%)	6.00% - 6.20%	6.40%-6.80%	6.90%-7.30%

In addition to the maturing NT-Bills, expected OMO maturity worth N532.7bn on Thursday will further bolster system liquidity. Despite the dampened N-TBills yields, we advise investors with short term investment horizon to invest in T-Bills due to its risk- and tax-free nature relative to other short-term investments. In addition, Commercial Papers and short term FGN Bonds (2-3 TTM) present a very good investment alternative to N-TBills.

Please see indicative secondary market T-Bills rates below:

Maturity	Tenor (Days)	Rate (%) p.a.	Yield (%) p.a.
2-Jan-20	24	6.00	6.02
30-Jan-20	52	6.75	6.82
2-Apr-20	115	7.80	8.00
13-Aug-20	248	8.30	8.80
24-Sep-20	290	8.50	9.12
29-Oct-20	325	9.00	9.78

Rates are valid till 01:45pm today (09-Dec-19)

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

FGN Bonds Market Update: Sustained Demand Pushes Average Yield by 42bps W-o-W to 11.6%

In line with our expectation, the bullish run in the bonds market was sustained as investors took position across the yield curve on the back of matured OMO and T-Bills instruments. Intense demand was witnessed on bonds with 3-6 TTM particularly the MAR-24 (-117bps), MAR-25 (-94bps) and APR-23(-83bps) bonds. As a result, average yield across the curve declined by 42bps to close at 11.6% on Friday.

Please see below FGN Bond Rates:

Bond	Tenor (Years)	Yield (%)	Coupon (%)	Implied Price (N)
Jul-21	2	9.61	14.50	107.06
Jan-22	3	8.50	16.39	115.05
Apr-23	4	10.45	12.75	106.39
Mar-24	5	10.30	14.20	113.15
Mar-25	6	10.50	13.53	112.02
Jan-26	7	11.00	12.50	106.52
Mar-27	8	11.30	16.29	124.24
Feb-28	9	11.30	13.98	114.05
Jul-34	15	11.65	12.15	103.44
Mar-36	17	11.60	12.40	105.75
Apr-37	18	11.61	16.25	134.28
Apr-49	30	12.55	14.80	117.39

Rates are valid till 01:45pm today (09-Dec-19)

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

We expect to see a continuation of the bullish appetite this week as investors continue to seek higher yielding instruments following the CBN's policy excluding local investors from participating in the OMO auction. Investors are advised to cherry pick instruments with the most attractive yields across the curve.