Demand Drives Bullish Outing as Average Yield on NT-Bills Dip to 1.4%, PMA Holds on Wednesday

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Monday, October 12, 2020 01:41 PM / By Afrinvest Research / Header Image Credit: LegitNG

 

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The bearish sentiment in the Nigerian Treasury Bills ("NT-Bills") secondary market was reversed as buying interest - triggered by high financial system liquidity (N415.1bn at the start of the week) - pressured average yield 46bps downwards W-o-W across board.

 

In more detail, most demand was realized on long-term NT-Bills due to more attractive offers especially on the 29-Aug-2021 and 09-Sep-2021 bills, both shedding 1.0% W-o-W apiece. Thus, average yield at the long end of the curve contracted 82bps W-o-W from 2.5% to 1.7%.  In the same vein, short-term bills declined 16bps due to an equal spread of demand while performance on medium-term bills was flat with a bullish bias as average yield marginally dipped 3bps.

 

At the Open Market Operations ("OMO") segment, N567.7bn worth of maturities on Thursday led to a spike in liquidity levels (N1.0tn by Friday last week) as well as pressured demand in the OMO segment. The Apex bank however offered only N100.0bn via OMO Auction to mop up excess liquidity. Consequently, average yield across OMO instruments declined 53bps W-o-W to 1.4%

 

Going into the week, the CBN is slated to conduct an NT-Bills Primary Market Auction ("PMA") on Wednesday, offering N104.9bn (84.0% worth of maturing PMA bills) across the 91-, 182- and 364-Day tenors.

 

Please see details of our expectations in table below:

 

Auction Date

14-Oct-20

14-Oct-20

14-Oct-20

Allotment / Issue Date

15-Oct-20

15-Oct-20

15-Oct-20

Tenor

91-Day

182-Day

364-Day

Offer Amount (N)

8,849,034.00

3,500,000.00

92,535,643.00

Previous Stop Rates (%)

1.0800

1.4900

2.8000

Expected Stop Rate Range (%)

1.00 - 1.20

1.30 - 1.60

2.40 - 3.01

 

We expect buying sentiment in the NT-Bills space to simmer down as market players may shift focus to PMA offerings and other investment alternatives due to the unattractive yields. However, liquidity levels are also expected to further pressure demand as OMO and NT-bills maturities worth N370.0bn and N104.9m respectively hit the system.

 

Consequently, our advice is for investors to look out for possible Commercial Paper offerings and other money market alternatives, while risk averse investors may hunt for opportunities on medium-term NT-Bills that traded flat last week.

 

Please see indicative secondary market T-Bills rates below:

 

Maturity

Tenor (Days)

Rate (%) p.a.

Yield (%) p.a.

31-Dec-20

80

2.60

2.61

11-Feb-21

122

3.40

3.44

13-May-21

213

3.85

3.94

15-Jul-21

276

4.14

4.27

9-Sep-21

332

4.36

4.54

Rates are valid till 01:45pm today (12-Oct-20)

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

 

Proshare Nigeria Pvt. Ltd.


FGN Bond Update: Sustained Bullish Run as Average Yield on Domestic Bonds Contract 58bps W-o-W to close at 6.3%

In the local bond space, strong demand was sustained on the back of high liquidity levels as matured funds from OMO and NT-Bills also filtered into the Bond market. Thus, average yield across all instruments declined 58bps W-o-W from 6.8% to 6.3% on Friday.

 

Medium-Term bonds witnessed the most demand, shedding 90bps W-o-W as Feb-2028 and Jan-2026 instruments dipped the most by 1.5% and 1.3% respectively. Similarly, short- and long-term bonds also contracted 13bps and 55bps respectively. On the flipside, Jan-2022 bond was the lone advancer last week, gaining 41bps W-o-W due to profit taking towards the end of the week.

 

In the FGN bond market this week, we expect the bullish sentiment to be sustained as investors hunt for attractive opportunities across the curve and high liquidity levels may further pressure yields downwards.

 

Investors are advised to cherry pick high yielding instruments while looking out for investment-grade corporate bonds with relatively more attractive returns.

 

Please see indicative secondary market bond rates below:

Bond

Tenor (Years)

Yield (%)

Coupon (%)

Implied Price (N)

Jan-22

2

1.20

16.39

119.37

Apr-23

3

1.70

12.75

127.35

Mar-24

4

1.95

14.20

140.37

Mar-25

5

2.60

13.53

145.63

Jan-26

6

3.85

12.50

140.93

Mar-27

7

4.70

16.29

163.67

Feb-28

8

4.80

13.98

156.36

Apr-29

9

5.05

14.55

165.22

Jul-34

14

7.20

12.15

142.75

Mar-36

16

7.25

12.40

147.36

Apr-37

17

7.25

16.25

185.84

Apr-49

29

7.70

14.80

181.52

 

Rates are valid till 01:45pm today (12-Oct-2020)

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

 

Proshare Nigeria Pvt. Ltd.


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