NT-Bills Secondary Market Sustains Bullish Run as Average Yield Moderates to 1.1%WoW

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Monday, October 19, 2020 / 1:57 PM /by Afrinvest Research / Header Image Credit: MoneyWeb

 

Last week, the Nigerian Treasury Bills ("NT-Bills") market sustained its bullish run for the second consecutive week as a result of ample system liquidity which was at N250.6bn on Wednesday as demand from investors with lost bids at the Primary Market Auction ("PMA") filtered into the secondary market.

 

Demand was broad based, leading to synchronized declines across all ends of the curve. The most buying interest was observed on mid-tenor instruments as average yield contracted 54bps W-o-W with the 11-Mar-2020 (-77bps) recording the highest demand. In the same vein, the short term and long term T-bills instruments particularly the 14-Jan-21 (-54bps) and 29-Apr-21(-23bps) witnessed some interests.

 

On Wednesday, The CBN conducted a PMA where maturing bills worth N124.9bn was offered. Sustained liquidity-driven demand was witnessed as bid-to-cover ratio across all tenors printed at 4.9x (N124.9bn offer vs. N618.1bn subscription). As a result, stop rates across all tenors declined.

 

Please see a detailed summary of the NT-Bills PMA in the 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 (bn N)

8,849,034,000

3,500,000,000

112,535,643,000

Total Subscription (bn N)

33,036,032,000

44,734,176,000

540,323,261,000

Allotment (bn N)

12,761,131,000

4,502,889,000

107,620,657,000

Range of Bid Rates (%):

0.7990 - 1.4000

1.0000 - 1.8000

1.6800 - 3.0000

Previous Stop rates (%)

1.0800

1.4900

2.8000

Current Stop Rates (%):

1.0000

1.0000

2.0000

Bid to cover ratio

3.7x

12.8x

4.8x

Allotment ratio

0.4x

0.1x

0.2x

 

As a system liquidity check, The Apex bank also conducted an Open Market Operation ("OMO") on Thursday.  Although OMO maturities worth N370.0bn matured, the CBN offered just N60.0bn worth of OMO bills across the 110-day (N10.0bn), 180-day (N10.0bn) and 362-day (N40.0bn) instruments. All instruments were oversubscribed as the 110-day (Subscription: N28.6bn; Sale: N10.0bn), 180-day (Subscription: N50.4bn; Sale: N10.0bn) and 362-day (Subscription: N324.0bn; Sale: N40.0bn) Bills were oversubscribed by 2.9x, 5.0x and 8.1x with marginal rates of 4.1%, 7.1% and 8.5%.

 

Going into this week, we anticipate further pressure on yields due to system liquidity (N408.6bn as at Friday). Furthermore, OMO maturities worth N296.0bn is expected to further bolster liquidity. We recommend that investors take position in instruments with relatively higher yields and also consider other Commercial Papers with relatively better returns.

 

Proshare Nigeria Pvt. Ltd.


Please see indicative secondary market NT-Bills rates below:

Maturity

Tenor (Days)

Rate (%) p.a.

Yield (%) p.a.

28-Jan-21

101

3.05

3.08

25-Feb-21

129

3.45

3.49

13-May-21

206

3.70

3.78

15-Jul-21

269

4.00

4.12

9-Sep-21

325

4.26

4.43

Rates are valid till 01:45pm today (19-Oct-2020)

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

 

FGN Bonds Update: Bullish sentiment Sustained as Average Yield declines to 5.0%; FGN Bond Auction holds this Wednesday

In the same vein, the bonds market extended its bullish performance following improved system liquidity last week. As a result, average yield across all instruments declined by 125bps W-o-W to close at 5.0% on Friday.

 

Asides, system liquidity, the bullish sentiment in the Bond market was based on the significant reduction in the October offer stated in the recently released circular by Debt Management office ("DMO") where only two bonds (MAR 2035 and JUL 2045) were made available for investors to invest in, this is a significant reduction in opportunities for investors.

 

Consequently, average yield across all tenors declined with the Jul-30(-199bps), Mar-35(-204bps) and Jul-34(-220bps) instruments recording the most buying interest.

 

This week, the DMO is slated to conduct a Bond PMA on Wednesday offering a total of N30.0bn across two re-opening bonds.

 

Please see more detail in the table below:

BONDS

12.50% MAR 2035

9.80% JUL 2045

15-Yr Re-opening

25-Yr Re-opening

Term to  Maturity

14 Years, 5 Months

24 Years, 9 Months

Offer Amount (bn N)

15,000,000,000

15,000,000,000

Previous Stop Rates (%)

8.5200

8.9000

 

We expect that investors will focus on Wednesday’s PMA, as inflows worth (N296.0bn) come into the system from OMO maturities.


Due to the limited supply at the auction, we expect demand from investors with unmet bids to filter into the secondary market further pressuring yields, thus, Investors are advised to cherry pick attractive instruments at the start of the week.

 

Please see indicative secondary market bond rates below:

Bond

Tenor (Years)

Yield (%)

Coupon (%)

Implied Price (N)

Mar-24

4

1.05

14.20

143.86

Mar-25

5

1.30

13.53

152.47

Jan-26

6

2.55

12.50

148.65

Mar-27

7

3.15

16.29

175.74

Feb-28

8

3.30

13.98

169.14

Jul-34

14

4.55

12.15

177.01

Mar-36

16

5.05

12.40

178.06

Apr-37

17

5.30

16.25

219.43

Apr-49

29

6.30

14.80

211.91

Rates are valid till 01:45pm today ((19-Oct-2020)

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


Proshare Nigeria Pvt. Ltd.


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