DMO Oversells N260bn While Cutting Rates Off the Back of Strong Demand at the FGN Bond Auction

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Thursday, August 19 2021 / 9:05 AM / by Zedcrest Capital / Header Image Credit: TheCable

FGN Bonds 

The FGN bonds market held its breath as traders anticipated the FGN Bond primary market auction results. Yields continued to drop across the benchmark curve, dipping further by c.14bps on average, showing the market's expectation for lower rates at the FGN Bond auction. Offers remained scarce, especially on the 2029s paper which saw bids drop by 85bps day-on-day.

 

At the monthly bond auction, the DMO raised a total of c.N260.09bn (173% of the total offered amount) across the three tenors offered with a total bid-to-cover ratio of 2.40X. The stop rates maintained the theme of dropping rates seen over the last three auctions in line with the direction of market yields over the same period. Stop rates for the 10-, 20- and 30-year tenors dropped by an average of c.53bps auction-on-auction.


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The strong showing of demand at the auction gave room for the DMO to oversell its offered amount and still cut rates by over 50bps from the last auction. With over 70% of the total bid amount filled at rates c.15bps above the market bids, we expect to see a pullback on secondary market yields with most of the recent demand seemingly met at the auction.

 

FGN Bond Auction Result - August 18, 2021

Maturity

Rate (%)

Offer (N'bn)

Sub (N'bn)

Sale (N'bn) 

Previous Rate (%)

Changes

Feb-28s

11.60

50.00

77.69

64.25

12.35

-0.7500

Mar-36s

12.75

50.00

104.95

91.03

13.15

-0.4000

Mar-50s

12.80

50.00

177.38

104.81

13.25

-0.4500

 


Benchmark FGN Bonds 

 

Description 

Bid (%) 

Offer (%) 

Day Change (%) 

12.75 27-Apr-23 

10.50

9.90

(0.20)

14.20 14-Mar-24 

11.00

10.10

0.00

13.53 23-Mar-25 

11.10

10.30

0.00

12.50 22-Jan-26 

11.15

10.35

0.00

16.29 17-Mar-27 

11.30

10.80

(0.20)

13.98 23-Feb-28 

11.30

10.80

(0.20)

14.55 26-Apr-29 

11.20

10.75

(0.85)

12.15 18-Jul-34 

12.45

12.15

(0.15)

12.50 27-Mar-35 

12.50

12.20

(0.10)

12.40 18-Mar-36 

12.55

12.20

(0.10)

16.2499 18-Apr-37 

12.60

12.25

(0.05)

9.80 24-Jul-45 

12.50

12.20

0.00

14.80 26-Apr-49 

12.70

12.35

0.00

12.98 27-Mar-50 

12.85

12.60

(0.15)

 

 

Treasury Bills 

It was another consecutive session with muted trading activity in treasury bills space, as pressures on system liquidity continued to pressure the positions of banks. Bids remained steady across the treasury bills curve, but with no supply as local banks begin to prepare funding positions ahead of the auction debits scheduled for the end of the week.


We expect the market to remain choppy in the interim as banks continue to prioritize reducing their interbank funding positions. Activity on the CBN Special bills is expected to improve as some holders look to book early profits ahead of the pending maturity that draws closer.

 

Benchmark OMO Bills 

Description 

Bid (%) 

Offer (%) 

Day Change (%) 

NGOMOB 0 09/07/21

12.00

2.50

0.00

NGOMOB 0 10/19/21

12.00

3.75

0.00

NGOMOB 0 11/02/21

14.00

4.75

0.00

NGOMOB 0 12/07/21

14.00

5.75

0.00

NGOMOB 0 01/11/22

14.00

6.75

0.00

NGOMOB 0 02/01/22

14.00

6.75

0.00

NGOMOB 0 03/01/22

14.00

7.25

0.00

Benchmark NT-Bills 

Description 

Bid (%) 

Offer (%) 

Day Change (%) 

NIGTB 0 08/26/21

12.00

2.50

0.00

NIGTB 0 09/09/21

12.00

2.50

0.00

NIGTB 0 10/14/21

12.00

3.75

0.00

NIGTB 0 11/11/21

12.00

3.75

0.00

NIGTB 0 01/13/22

14.00

5.75

0.00

NIGTB 0 02/10/22

14.00

6.75

0.00

NIGTB 0 03/10/22

14.00

7.75

0.00

NIGTB 0 04/28/22

14.00

7.75

0.00

NIGTB 0 05/12/22

14.00

7.75

0.00

NIGTB 0 06/09/22

14.00

7.75

0.00


 

Money Markets

Interest rates trended upwards by an additional c.29bps from yesterday's close as naira dealers continue to scramble for funding amidst tight system liquidity. Local banks re-opened fresh Repos and increased their SLF positions with the CBN causing system liquidity to roll back into a deficit of -N7.60billion. Consequently, Open Buy Back (OBB) and Overnight (O/N) rates closed at 17.50% and 17.75%, respectively.

 

For Tomorrow, we anticipate funding rates to remain steady at these levels, as we do not expect any immediate inflow to calm the market in the interim.


Money Market Rates

 

Current (%)

Previous (%)

Open Buy Back (OBB)

17.50

17.00

Overnight (O/N)

17.75

17.67

 


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FX Market

At the IEFX space, we saw a 10% rise in the D/D supply of the greenback, as traded volumes stayed above $100m. Despite these inflows from investors, the Naira depreciated by 0.06% closing the session at N411.75/$, while market bids continued to range between N400.00 and N420.00 to the dollar.

 

At the parallel market space, the Rate closed flat at the transfer window at N522.00/$ while demand increased at the cash space today causing naira to depreciate by N2.000 closing at N516.00/$.


FX Market

Current (N/$)

Previous (N/$)

CBN SMIS

380.69

380.69

I&E FX Window

411.75

411.50

Cash Market

516.00

514.00

Transfer Market

522.00

522.00

 


Eurobonds

The SSA Sovereign papers continued to snooze with light and mixed trading sentiments amongst the different country's bonds traded. Egypt had the strongest sentiments amongst the SSA papers opening better bided at the belly and tail of the curve. Investors also showed interest in Rwanda and Ghana Sovereign Bonds (Rwanda 31s and Ghana 61s). At the Nigeria Sovereign's space, we saw selling interest from investors on the short and mid-dated papers which caused yields to expand by c.3bps across the benchmark curve.

 


The NIGERIA Corporates were less active compared to yesterday albeit more offers were shown for the ECOTRA 26s and ETINL 31s bonds thus yields expanded by c.2bps and 3bps respectively.


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