Hike in CRR Fuels Bearish Sentiments as Average Yield Inches to 3.7%, NB CP Available

Proshare

Monday, February 03, 2020   /12:20 PM  / By Afrinvest / Header Image Credit:  LPC Advisors

 

Following the increase in the Cash Reserve Ratio ("CRR") from 22.5% to 27.5%, the Nigerian Treasury Bills ("NT-Bills") secondary market started off with sell-offs last week as investors reacted to the potential squeeze in system liquidity (c. N 294.2bn as at Friday). However, the bearish sentiments slowed towards the end of the week amidst the Primary Market Auction ("PMA") and inflows from maturing Open Market Operation ("OMO") bills (c. N 495.0bn). Subsequently, average yield across all tenors rose from 3.5% to 3.7% W-o-W. Major sell-offs were recorded on the short and mid tenor bills, particularly the 2-Apr-20 (+117bps), 12-Mar-20 (+46bps) and 16-Jul-20 (+21bps) maturities.

 

At the PMA on Wednesday, investors demand contracted across all tenors relative to that of previous auctions. While the significant decline in subscription levels was surprising, investors benchmarked yields to the FGN Promissory notes which traded at higher levels.  Consequently, stop rates across the short, medium and long term instruments rose by 0.6%, 0.6% and 1.4% respectively. The average bid to cover ratio was 1.1x  with the 91-day tenors enjoying the most interest at 1.9x.

 

Please see a detailed summary in the table below:

Auction Date

29-Jan-20

29-Jan-20

29-Jan-20

Allotment / Issue Date

30-Jan-20

30-Jan-20

30-Jan-20

Tenor

91-Day

182-Day

364-Day

Offer Amount (N)

28,018,956,000

33,684,524,000

167,932,674,000

Total Subscription (N)

53,171,651,000

57,781,357,000

152,708,007,000

Allotment (N)

49,839,651,000

54,592,585,000

125,203,918,000

Range of Bid Rates (%)

2.0000 - 9.4000

3.0000 - 10.5000

4.0000 - 15.0000

Stop Rates (%)

3.5000

4.5000

6.5000

Previous Stop Rates (%)

2.9500

3.9500

5.0900

Bid-to-Cover Ratio

1.9x

1.7x

0.9x

Allotment Ratio

0.9x

0.9x

0.8x

 

On Thursday, the Apex Bank offered OMO bills worth N200.0bn across 82-, 180- and 364-Day tenors and this received a total subscription of N478.2bn. The medium and long tenor bills were both oversubscribed by 2.0x and 2.5x respectively while the short tenor received no subscription. Subsequently, the CBN   allotted a total of N210.3bn with stop rates across the 180 and 364-Day tenors clearing at 11.6% (vs. 11.5% previously) and 13.0% (vs. 13.2% previously) respectively

 

Going into the week, we expect the CBN to sustain its liquidity mop ups given that inflows from OMO maturities worth N327.6bn is expected to bolster system liquidity. We also expect trading activities to improve especially as investors fully digest the impact of the CBN's new policy on CRR. Investors are thus advised to cherry pick relatively attractive offers as well as close alternatives such as short-term FGN bonds (with TTM of 2-3 years).

 

Please see indicative secondary market T-Bills rates below:

Maturity

Tenor (Days)

Rate (%) p.a.

Yield (%) p.a.

12-Mar-20

38

2.00

2.00

2-Apr-20

59

2.10

2.11

13-Aug-20

192

4.00

4.09

24-Sep-20

234

4.60

4.74

29-Oct-20

269

5.00

5.19

Rates are valid till 01:45pm today (3-Feb-2020)

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

 

NB Commercial Paper

Nigerian Breweries PLC ("NB") is seeking to raise up to N45 billion Series 5 and Series 6 Commercial Paper under its N100 billion Commercial Paper ("CP") Programme in order to finance its working capital.

Please see below the terms of the offer: 

Issuer

Nigerian Breweries PLC ("NB")

Tenor 

183-Day

270-Day

Effective Yield (%)

5.0000

7.5000

Discount Rate (%)

4.8781

7.1068

Issuer Rating

Aa- (Agusto & Co.); A1+ (GCR)

Subscription

Minimum of ₦5.0 million and multiples of ₦1,000 thereafter

Tax Considerations

Free and clear of withholding taxes

Offer Open Date

Monday, 3 January 2020

Offer Close/Allotment Date

Friday, 7 January 2020

Settlement Date

Monday, 10 February 2020

Offer valid till 9:00am on (7-Feb-20)

*Please note that the minimum subscription for Commercial Papers is N5,000,000.00

 

FGN Bonds Update: Bullish Sentiments Persist Due to Improved Domestic Demand

 

Contrary to the T-Bills market, bullish sentiments dominated the bonds secondary market last week as average yield declined 23bps W-o-W to settle at 9.8% on Friday. Owing to improved local demand, investors’ appetite for higher yielding alternatives buoyed buying interests across the yield curve. Consequently, major buying interests were recorded on the short and medium tenor instruments, particularly the 27-Jan-22 (-132bps), 22-Jan-26 (-64bps) and 27-Apr-23 (-36bps) maturities.

 

This week, we anticipate a slowdown in demand as investors trade cautiously on the back of the improved yield environment witnessed at the PMA. Investors are thus advised to trade cautiously and cherry pick instruments with relatively attractive yields.

 

Please see indicative FGN bond rates below:

Bond

Tenor (Years)

Yield (%)

Coupon (%)

Implied Price

Jul-21

2

6.25

14.50

111.24

Jan-22

3

6.40

16.39

118.31

Apr-23

4

8.15

12.75

112.80

Mar-24

5

8.85

14.20

118.08

Mar-25

6

8.90

13.53

118.73

Jan-26

7

9.15

12.50

115.14

Mar-27

8

9.65

16.29

133.59

Feb-28

9

10.00

13.98

121.64

Jul-34

15

10.50

12.15

112.12

Mar-36

17

10.45

12.40

115.02

Apr-37

18

10.30

16.25

147.45

Apr-49

30

11.63

14.80

126.20

Rates are valid till 01:45pm today (3-Feb-2020)

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

 

Proshare Nigeria Pvt. Ltd.


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 Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.

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