Bonds & Fixed Income | |
Bonds & Fixed Income | |
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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 ( |
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.
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