Mild Buying Activities on Long-Term NT-Bills Drive Average Yield 9bps Lower WoW to 1.0%

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Monday, February 08, 2021  / 3:10 PM / by Afrinvest Research / Header Image Credit: iStock


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The Nigerian Treasury Bills ("NT-Bills") secondary market resumed last week mostly on a quiet note with minimal selling activities witnessed only at the longer end of the curve as investors continued to exit long positions to fund their cash obligations as liquidity got as tight as N10.5bn negative last Tuesday.


However, by Wednesday, the significant improvement in liquidity levels (which stood at N229.5bn long) resulted in mild buying activities on long-dated maturities as its average yield closed 20bps down on the day, while short- and medium-term bills continued to trade flat. Consequently, average yields across all tenors shed 9bps W-o-W to settle at 1.0% from 1.1% the previous week.


Particularly, the long-term instruments such as the 14-Oct-21, 30-Sep-21, and 16-Sep-21 bills recorded the most demand from local investors, contracting 47bps, 45bps, and 44bps W-o-W respectively while the short- and mid-dated maturities remained flat W-o-W.

On Thursday, the Apex Bank conducted its customary Open Market Operation ("OMO") auction, allotting a total of N71.7bn across its three offers. Interestingly, the Central Bank of Nigeria ("CBN") hiked stop rates by 4.7% across all tenors, suggesting the CBN's attempt to retain the interest of foreign investors in a bid to ease some pressure on the Naira.

This week, the Apex bank is expected to rollover a total of N169.8bn across the 91-, 182- and 364-Day tenors at the Primary Market Auction ("PMA") on Wednesday.

Please see below more details and our expectations on the upcoming PMA:

Tenor

91- Day

182 - Day

364 - Day

Offer Amount

19,783,588,000

10,000,000,000

140,000,000,000

Last Stop Rate (%)

0.5500

1.3000

2.0000

Expected Stop Rate Range (%)

0.5500 - 0.9000

1.3000 - 2.3000

2.0000 - 3.0000



Please see T-Bills rates below:

Maturity

Tenor (Days)

Rate (%) p.a.

Yield (%) p.a.

13-May-21

94

1.20

1.20

15-Jul-21

157

1.73

1.74

26-Aug-21

199

2.00

2.02

28-Oct-21

262

2.40

2.44

25-Nov-21

290

2.64

2.70

Rates are valid till 01:45pm today (08-Feb-21)

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


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Furthermore, we expect the overall lacklustre interest from investors in the NT-Bills secondary market to persist as they trade cautiously in anticipation of the upcoming PMA on Wednesday despite the N213.9bn worth of maturing OMO instruments scheduled to hit the system and further boost liquidity levels (N433.6bn long on Friday). Thus, we advise investors to look out for possibly attractive short-term bond offers that advanced last week.


FGN Bonds Update

Mild Bullish Outing in the FGN Bonds Secondary Market as Average Yield Shed 7bps W-o-W to 8.0%.


Last week, the FGN Bonds secondary market performance was bullish as investors took position in response to the expanding yields across the curve. As a result, average yields declined 7bps W-o-W to 8.0% from 8.1% the previous week.

In more detail, investors demand was witnessed on the 23-FEB-28, 28-NOV-28 and 18-MAR-36 maturities which declined 35bps, 27bps and 42bps W-o-W respectively. On the flip side, sell-offs were recorded on a few short-dated maturities such as the 27-JAN-22 instrument which expanded 73bps W-o-W.

Please see below FGN Bonds secondary market rates:

Bond

Tenor (Years)

Yield (%)

Coupon (%)

Implied Price (N)

Apr-23

2

5.30

12.75

115.36

Mar-24

3

5.80

14.20

123.49

Mar-25

4

6.00

13.53

127.12

Jan-26

5

6.65

12.50

124.34

Mar-27

6

8.15

16.29

138.52

Feb-28

7

8.20

13.98

130.44

Jul-34

13

9.60

12.15

119.01

Mar-36

15

9.60

12.40

122.07

Apr-37

16

9.65

16.25

153.48

Apr-49

28

9.72

14.80

148.63

Rates are valid till 01:45pm today (08-Feb-21)

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

Going into the week, we expect very cautious trading in the domestic bond space as investors demand more competitive yields due to higher stop rates at the OMO auction as well as expected yields on this week's NT-Bills PMA. However, towards the end of the week, we anticipate re-positioning in relatively attractive maturities across and therefore advice investors to take advantage of bargain opportunities.


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