Investors Remain Calm as Average Yield Closes Flat at 3.4%

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Monday, June 15, 2020 / 12:43 PM / By Afrinvest Research / Header Image Credit: LegitNG

 

The quiet posture in the Nigerian Treasury Bills ("NT-Bills") secondary market was sustained last week. This was on the back of the liquidity squeeze (N84.1bn as at Monday) from CRR debits the previous week, along with investors' anticipation for the Primary Market Auction ("PMA") that held on Wednesday. Consequently, average yield across the curve remained unmoved at 3.4% with minimal demand on the 16-Jul-20 bill (-1bp W-o-W).


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At the PMA, the Central Bank's total offer of N90.9bn across the 91-, 182- and 364-day tenors was met with significant demand from investors, following the mild boost in system liquidity (N107.4bn long as at Tuesday). As a result, the bid-to-cover ratio across all tenors stood at 1.9x (total subscription of N176.3bn) with the short-term offer enjoying the most buying interest, recording a bid-to-cover ratio of 12.0x (N1.8bn offered vs. N21.6bn subscribed). Similarly, the intermediate offer garnered investors demand with a bid-to-cover ratio of 8.9x (N4.5bn offered vs. N40.3bn subscribed), while the long-tenor bill witnessed relatively weaker demand, having a bid-to-cover ratio of 1.4x (N84.6bn offered vs. N114.9bn subscribed).

 

Notably, the CBN allotted N4.4bn, N7.8bn and N78.7bn (from its initial offer of N1.8bn, N4.5bn and N84.6bn) across its 91-, 182- and 364-day offers. Additionally, stop rates on the short- and medium-term instruments contracted to 2.00%, 2.20% while the long-term instrument remained stable at 4.02%.

 

Please see below the PMA results:

Auction Date

10-Jun-20

10-Jun-20

10-Jun-20

Allotment / Issue Date

11-Jun-20

11-Jun-20

11-Jun-20

Tenor

(91-Day)

(182-Day)

(364-Day)

Offer Amount (N)

1,800,000,000

4,500,000,000

84,640,724,000

Subscription (N)

21,682,446,000

40,285,573,000

114,970,836,000

Allotment (N)

4,405,140,000

7,820,805,000

78,714,779,000

Range of Bid Rates (%):

1.6000 - 12.0000

2.0000 - 12.0000

3.5000 - 6.9000

Stop Rates (%):

2.00

2.20

4.02

Previous Stop Rates (%):

2.45

2.72

4.01

Bid-to-Cover Ratio:

12.0x

9.0x

1.4

Allotment Ratio

0.2x

0.2x

0.7x

 

At the Open Market Operation ("OMO") auction, investors showed strong demand as the Apex Bank's total offer of N60.0bn across the 89-, 180- and 348-day tenors following the improved liquidity levels from matured OMO and T-Bills that hit the system. Also, the CBN maintained stop rates at previous levels, closing at 5.0%, 7.8% and 9.0% for the short-, mid- and long-term offers.

 

This week, we expect to see improved activity in the NT-Bills secondary market, as investors' with un-invested funds from the OMO and Primary Market Auctions may filter into the secondary market. In addition, we anticipate that the N352.8bn and N14.6bn worth of maturing OMO and NT-Bills set to hit the system will support re-investing from local players. Thus, we expect yields to contract and maintain our advice that investors take advantage of the relatively more attractive bills along the curve while also remaining alert for possible commercial paper flotations.

 

Please see indicative secondary market NT-Bills rates below:

Maturity

Tenor (Days)

Rate (%) p.a.

Yield (%) p.a.

30-Jul-20

45

2.75

2.76

27-Aug-20

73

3.25

3.27

29-Oct-20

136

4.20

4.27

12-Nov-20

150

4.30

4.38

11-Feb-21

241

4.70

4.85

Rates are valid till 01:45pm today (15-Jun-20)
*Please note that the minimum subscription for NT-Bills is N100,000.00

 

FGN Bonds Update: Bearish Trend Sustained as Average Yield Advances 7bps W-o-W to 10.1%

In the bonds market last week, performance remained bearish due to the absence of significant inflows to buoy buying activities while investors also awaited results from the Debt Management Office's ("DMO") Third Sovereign Sukuk Bond auction. As a result, average yield across all tenors inched higher by 7bps W-o-W to settle at 10.1% from 10.0% the previous week. Particularly, the 26-Apr-29 and 22-Jan-26 recorded the most selloffs, advancing 34bps and 33bps W-o-W respectively.

 

The DMO released the results of the Sukuk Bond auction  on Friday, showing strong demand with a bid-to-cover ratio of 4.5x as total subscription stood at N669.1bn (vs. total planned offer of N150.0bn). As a result, the debt office allotted N162.6bn, 8.4% above the offer size.

 

Going into the week, the DMO is scheduled to offer a total of N165.0bn (N90.0bn higher than May 2020 offer) across the 5-, 15- and 30-year re-opening bonds at the primary market auction on Wednesday.

Bond Name

12.75% FGN APR 2023 (Re-opening)

12.50% FGN MAR 2035
(Re-opening)

12.98% FGN MAR 2050 (Re-opening)

Term-To-Maturity

2 Years, 10 Months

14 Years, 9 Months

29 Years, 9 Months

Range of Amount on Offer

N35.0bn- N45.0bn

 
N15.0bn- N55.0bn
 

 
N55.0bn- N65.0bn

 

Please see details of the auction below:

We expect a reversal of this bearish trend this week as investors seek to place their unfilled bids from the Sukuk auction   in the secondary bonds market. Therefore, we advise investors to take advantage of the relatively more attractive yields across the curve.

 

Please see indicative secondary market bond rates below:

Bond

Tenor (Years)

Yield (%)

Coupon (%)

Implied Price (N)

Jul-21

1

             3.90

             14.50

                   111.13

Jan-22

2

             4.30

             16.39

                   118.67

Apr-23

3

             7.70

             12.75

                   112.74

Mar-24

4

             7.68

             14.20

                   120.84

Mar-25

5

             7.20

             13.53

                   125.15

Jan-26

6

             8.60

             12.50

                   117.03

Mar-27

7

             9.40

             16.29

                   133.83

Feb-28

8

             9.40

             13.98

                   124.65

Jul-34

14

           10.35

             12.15

                   113.17

Mar-36

16

           10.35

             12.40

                   115.73

Apr-37

17

           10.35

             16.25

                   146.54

Apr-49

29

           11.40

             14.80

                   128.57

Rates are valid till 01:45pm today (15-Jun-20)
*Please note that the minimum subscription for FGN Bonds is N20,000,000.00

 

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