Buoyant System Liquidity Pressures Average Yield Down To 13.3%

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Monday, September 09, 2019   /12:04PM  / By Afrinvest Research / Header Image Credit: Biz Watch Nigeria

 

In line with our expectations, the upbeat in demand was sustained in the Treasury Bills ("T-Bills") secondary market last week as system liquidity remained elevated (N862.2bn positive as at Thursday) amidst the OMO auction that was conducted by the Apex bank on the same day. Although, system liquidity opened the week negative N68.0bn spurring sell offs, liquidity from matured OMO bills bolstered demand across the yield curve during the remaining trading sessions of the week. 

Consequently, yields remained pressured as average yield across tenors dipped further by 51bps W-o-W to settle at 13.3% on Friday from 13.8% the previous week. Major buying interests were witnessed at the short and medium end of the curve, particularly, 24-Oct-19 (-126bps), 10-Oct-19 (-126bps) and 12-Dec-19 (-111bps) maturities. 

At the anticipated OMO auction on Thursday, the CBN offered a total of N400.0bn across the 91, 189 and 364day instruments.  This was met with a total subscription of N322.1bn, showing 0.4x, 0.2x and 1.6x bid to cover ratios respectively, as investors continue to position in longer dated bills with attractive rates. Nevertheless, stop rates remained unchanged from that of the previous week auctions. 

Going into the week, the CBN is expected to rollover N158.7bn worth of maturing T-Bills at the Primary Market Auction this Wednesday, following the release of its Q4:2019 T-Bills auction calendar.

 

Please see details of this week Primary Market Auction below:

Tenor

91-Day

182-Day

364-Day

Offer Amount (N)

15,000,000

14,002,523

129,651,700

Last Stop Rate (%)

11.1000

11.5878

12.8100

Expected Stop Rate Range (%)

11.00% - 11.15%

11.60%-11.70%

12.85%-13.00%

 

Furthermore, inflows from maturing OMO bills (N390.7bn) is expected to hit the system thereby bolstering system liquidity. We expect the CBN to maintain its pace of excess liquidity mop-ups to keep system liquidity in check.

 

Investors are therefore advised to take position in T-Bills and OMO offers with attractive yields.

 

Please see indicative secondary market T-Bills rates below:

Maturity

Tenor (Days)

Rate (%) p.a.

Yield (%) p.a.

17-Oct-19

38

10.20

10.31

7-Nov-19

59

10.30

10.47

23-Jan-20

136

11.50

12.01

13-Feb-20

157

11.70

12.32

18-Jun-20

283

12.20

13.47

13-Aug-20

339

12.16

13.71

OMO Auction

c.100

10.64

10.96

OMO Auction

c.200

11.20

11.93

OMO Auction

c.350

12.90

14.72

 

Rates are valid till 01:45pm today (09-Sept-2019)

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

 

FGN Bonds Market Update:  Average Yield Advance 20bps W-o-W due to Sell-offs 

The bullish run in the FGN bonds market was reversed last week as investors sold off on their medium and long positions to take advantage of anticipated attractive rates at the OMO auctions. Thus, average yield across all instruments closed at 14.2% from 14.0% the previous week improving 20bps W-o-W. Major Sell-offs were witnessed at the 12-Sep-20 (+129bps), 20-Sep-20 (-126bps) and 10-Oct-20 (+117bps) maturities. 

Going into this week, we expect to see tapered demand within the bond market on the back of bargain hunting as investors may take advantage of long-term OMO offerings with attractive rates. 

Investors are therefore advised to take advantage of bonds with attractive yields and trading at a discount.

 

Please see indicative bond rates for today below:

Bond

Tenor (Years)

Yield (%)

Coupon (%)

Implied Price (N)

Jul-21

2

13.80

14.50

101.06

Jan-22

3

14.05

16.39

104.55

Apr-23

4

14.15

12.75

96.09

Mar-24

5

13.95

14.20

100.81

Mar-25

6

13.85

13.53

98.78

Jan-26

7

14.12

12.50

93.30

Mar-27

8

14.10

16.29

109.94

Feb-28

9

14.12

13.98

99.30

Jul-34

15

14.38

12.15

86.42

Mar-36

17

14.40

12.40

87.50

Apr-37

18

14.40

16.25

111.69

Apr-49

30

14.50

14.80

101.99

 

Rates are valid till 01:45pm today (09-Sept-2019)

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


Proshare Nigeria Pvt. Ltd.

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