NT-Bills Yields Further Pressured as System Liquidity Improves, PMA Oversubscribed

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Monday, August 17,2020 / 01:15 PM / by Afrinvest Research / Header Image Credit: LegitNG

 

Proshare Nigeria Pvt. Ltd.


Last week, the Nigerian Treasury Bills ("NT-Bills") secondary market started off on a quiet note due to low liquidity levels (c. N182.4bn on Monday) coupled with investors anticipating the Primary Market Auction ("PMA") that held on Wednesday.  However, by Thursday, activity level picked up on the back of improved system liquidity (c. N235.3bn as at Thursday) buoyed by inflows from matured NT-Bills and Open Market Operations ("OMO") worth N56.8bn and N88.0bn respectively. Demand also trickled into the secondary market from the quantum of lost bids (N61.4bn) at the PMA.

 

As a result, average yield across all tenors dipped 14bps W-o-W to close at 1.6% on Friday. Demand witnessed on the 11-Feb-21 (-75bps), 28-Jan-21 (-43bps) and 17-Sep-20 (-31bps) bills dragged yields at the short and medium end of the curve.

 

At the PMA, the CBN's total offer of N56.8bn across the 91-, 182- and 364-day tenors witnessed a strong demand of N118.2bn, translating to a bid to cover ratio 2.1x (vs 1.8x at the previous auction). All tenors were oversubscribed with the most demand recorded on the 182-day tenor which had a 3.1x bid-to-cover ratio. Consequently, stop rates across the 182- and 364-day instruments closed lower at 1.4% and 3.2% respectively, while stop rate on the 91-day tenor remained unchanged.

 

Please see detailed PMA results below:

Auction Date

12-Aug-20

12-Aug-20

12-Aug-20

Allotment / Issue Date

13-Aug-20

13-Aug-20

13-Aug-20

Tenor

91-Day

182-Day

364-Day

Offer Amount (N)

19,783,588,000.00

10,000,000,000.00

27,000,000,000.00

Total Subscription (N)

30,607,538,000

31,110,868,000

56,469,516,000

Allotment (N)

19,783,588,000.00

10,000,000,000.00

27,000,000,000.00

Range of Bid Rates (%)

1.0000 - 1.8661

0.0100 - 3.3100

2.9000 - 12.8000

Stop Rates (%)

1.2000

1.3890

3.1999

Previous Stop Rates (%)

1.2000

1.5000

3.4000

Bid-to-Cover Ratio

1.5x

3.1x

2.1x

Allotment Ratio

0.6x

0.3x

0.5x

 

Interestingly, after over four consecutive weeks of non-issuance of new OMO bills, the CBN conducted an OMO auction last week issuing a total of N50.0bn across three tenors. While the 103- and 173-day instruments were undersubscribed, strong demand was witnessed on the 362-day tenor which had a 2.6x bid-to-cover ratio. Consequently, a total of N45.4bn was allotted with average stop rates across all tenors declining by 4bps to 7.2%.

 

This week, we expect improved liquidity levels from maturing OMO instruments worth N181.4bn as well as demand from unfilled bids at the last PMA to further pressure yields.

 

We maintain our recommendation that investors source for attractive NT-Bills along the curve as well as possible corporate offerings such as the CardinalStone Partners Limited Commercial Paper currently on offer. Investors with a long-term perspective are encouraged to take advantage of more attractive short-term bonds that advanced in yield last week.

 

Proshare Nigeria Pvt. Ltd.


Please see indicative secondary market NT-Bills rates below:

Maturity

Tenor (Days)

Rate (%) p.a.

Yield (%) p.a.

24-Sep-20

38

2.50

2.51

26-Nov-20

101

3.70

3.74

28-Jan-21

164

4.18

4.26

13-May-21

269

4.50

4.65

10-Jun-21

297

4.70

4.89

Rates are valid till 01:45pm today (17-Aug-2020)

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

 

CardinalStone Partners Limited Commercial Paper
Please be informed that CardinalStone Partners limited ("CardinalStone") is seeking to raise up to ₦5.0bn in the first series of its ₦10.0bn Commercial Paper ("CP") Programme in order to support its short term financing requirements.

Please see below the details of the offer:

CardinalStone Partners Limited

Series Number

Series 1

Tenor

270 days

Effective Yield

7.0000%

Discount Rate

6.6558%

Issuer Rating

'Bbb-' by Agusto & Co.
'A3' (Short-term); 'BBB-' (Long-term) by GCR
'A2' (Short-term); 'A-' (Long-term) by DataPro

Minimum Subscription

Minimum of N5.0m and multiples of N1,000 thereafter

Offer Open

Tuesday, August 11th, 2020

Offer Close Date

Wednesday, August 19th, 2020

Settlement Date

Monday, August 24th, 2020

Maturity Date

Friday, May 21st, 2021

Rates are valid till 09:00am on Wednesday (19-Aug-20)

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

 

FGN Bonds Update:  Bearish Sentiments Persist as Average Yield Rises to 7.9%; Bond PMA Holds this Wednesday

Contrary to the bullish sentiments in the NT-Bills market, the FGN bonds secondary market traded with mixed sentiments as market participants sold off positions in a bid to book profits. Although buying interests were observed on the mid- and long-term bonds, the short-term bonds recorded major sell offs, causing the market to have an overall bearish performance.

 

Consequently, average yield advanced by 5bps W-o-W to close at 7.9% on Friday. The Jan-22, Apr-23 and the Mar-24 bonds witnessed the most sell offs, advancing 205bps, 169bps and 144bps respectively, while yields on the long-term bonds - specifically the Jul-34, Mar-36, and the Mar-35 instruments declined 117bps apiece, due to mild buying interests.

 

Going into the week, the Debt Management Office ("DMO") is expected to offer a total of N 150.0bn (vs. N130.0bn offered last month) across the four tenors at the Bond PMA scheduled for Wednesday. We anticipate a high level of demand particularly on the 25- and 30-year bonds as investors seek to lock in funds at attractive yields.

 

Please see details of the auction below:

BOND

12.50% JAN 2026

12.50% MAR 2035

9.80% JUL 2045

12.50% MAR 2050

10-Yr Re-opening

15-Yr Re-opening

25-Yr Re-opening

30-Yr Re-opening

Term to Maturity

5 Years, 5 months

14 Years, 7 months

25 Years, 11 months

29 Years, 7 months

Offer Amount (bn N)

25,000,000,000

40,000,000,000

45,000,000,000

40,000,000,000

Previous Stop Rates

6.0000%

9.5000%

9.8000%

9.9500%


  

Our expectation is a quiet trading session today and tomorrow as investors trade cautiously ahead of the anticipated bond auction. However, we believe market activities would pick up by mid-week as investors participate at the PMA.  In addition, demand from unfilled bids at the auction is expected to filter into the secondary market.

 

Please see indicative secondary market bond rates below:

Bond

Tenor (Years)

Yield (%)

Coupon (%)

Implied Price (N)

Jan-22

2

3.15

16.39

118.52

Apr-23

3

4.45

12.75

120.83

Mar-24

4

3.70

14.20

134.83

Mar-25

5

4.30

13.53

138.12

Jan-26

6

5.80

12.50

130.81

Mar-27

7

6.75

16.29

150.00

Feb-28

8

6.80

13.98

141.72

Apr-29

9

7.25

14.55

146.43

Jul-34

14

8.45

12.15

129.93

Mar-36

16

8.60

12.40

132.27

Apr-37

17

8.70

16.25

165.76

Apr-49

29

9.03

14.80

158.79

Rates are valid till 01:45pm today (17-Aug-2020)

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

 

Proshare Nigeria Pvt. Ltd.


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