PMA Holds This Wednesday, Demand Drives Bullish Sentiment as Average NT-Bills Yield Drops to 1.9%

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Monday, September 07, 2020 / 12:59 PM / By Afrinvest Research / Header Image Credit: Benzinga

 

Proshare Nigeria Pvt. Ltd.


At the Nigerian Treasury Bills ("NT-Bills") secondary market last week, bullish sentiments were sustained on all trading days as average NT-Bills yield dipped 11bps W-o-W to close at 1.9% on the back of demand pressures. Consequently, medium- and long-term NT-Bills declined 26bps and 20bps W-o-W as bargain hunters took advantage of relatively more attractive yields caused by the previous week's sell-offs.  Thus, the 28-Jan-21 (-55bps), 25-Feb-21 (-60bps) and 01-Jul-21 (-79bps) maturities witnessed most buying interest. However, there was minimal activity on short-term bills causing a flat performance W-o-W.

 

The Apex bank also offered  N100.0bn in an Open Market Operations ("OMO") auction on Thursday across the 82-Day (N10.0bn), 180-Day (N10.0bn) and 355-Day (N80.0bn) tenors of which the short-term OMO bill was fully subscribed while medium- and long-term tenors were 1.8x and 1.5x oversubscribed  respectively. However, only the amount offered (N100.0bn) was allotted, representing 31.3% of matured OMO (N321.5bn), leaving a N221.5bn addition to the financial system on Thursday. Thus, liquidity levels closed the week N604.3bn positive.  

 

The Debt Management Office ("DMO") plans to roll over 86.3% of maturing NT-Bills (N914.9bn vs. N1.1tn maturing) between September to November 2020 as depicted in the newly released  3-Month PMA calendar (subject to change at short notice). We therefore expect more downward pressure on yields in both NT-Bills and OMO segments of the market

 

This week, the CBN is scheduled to hold a Primary Market Auction ("PMA") on Wednesday, offering 74.1% (N109.7bn) of the expected maturing NT-Bills (N148.1bn) across the 91- 182- and 364-Day instruments.

 

Proshare Nigeria Pvt. Ltd.


Please see details of our expectations in the table below:

Auction Date

09-Sep-20

09-Sep-20

09-Sep-20

Allotment / Issue Date

10-Sep-20

10-Sep-20

10-Sep-20

Tenor

91-Day

182-Day

364-Day

Offer Amount (N)

4,405,140,000

14,002,523,000

109,561,700,000

Previous Stop Rates (%)

1.1450

1.8000

3.3400

Expected Stop Rate Range (%)

1.00 - 1.40

1.24 - 2.00

3.00 - 3.50

 

We expect more focus on the anticipated PMA but believe the bullish sentiment on secondary market NT-Bills will be sustained on the back of expected rise in financial system liquidity due to excess funds from maturing investments. We maintain our recommendation that investors take advantage of attractive instruments across the yield curve but specifically, take position in long-term PMA and potential Commercial Paper offerings with more attractive yields.

 

Please see below indicative T-Bills rates:

Maturity

Tenor (Days)

Rate (%) p.a.

Yield (%) p.a.

8-Oct-20

31

2.60

2.61

26-Nov-20

80

3.25

3.27

11-Feb-21

157

4.03

4.10

13-May-21

248

4.40

4.54

15-Jul-21

311

4.71

4.91

Rates are valid till 01:45pm today (7-Sep-2020)

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

 

FGN Bond Update: Sell-Offs Drive Average Yield on Domestic Bonds 9bps Higher W-o-W to close at 8.1%

On the flipside, the bonds market witnessed a bearish run last week as average yield advanced 9bps due to sell-offs especially on short- and medium-term bonds. However towards the end of the week, investors took position in short term bonds following inflow from matured OMO bills.

 

In more detail, average yield on short-term and long-term bills  advanced 3bps and 27bps W-o-W respectively as most sell-offs were witnessed on the JAN-22 (+27bps)  and MAR-36 (+98bps) bonds that declined the most in the previous week. While average yield on medium term bonds contracted 9bps W-o-W due to demand for FEB-28 (-27bps).

 

Going into this week, The Debt Management Office ("DMO") is scheduled to auction the 2 and 3-year tenor FGN savings bond for the month of September from Monday (07-Sep-20) through Friday (11-Sep-20) at 3.501% and 4.501% respectively.

 

Please see below indicative FGN bond rates:

Bond

Tenor (Years)

Yield (%)

Coupon (%)

Implied Price

Jan-22

2

2.75

16.39

118.40

Apr-23

3

4.30

12.75

120.83

Mar-24

4

4.45

14.20

131.40

Mar-25

5

5.20

13.53

133.30

Jan-26

6

5.95

12.50

129.72

Mar-27

7

7.30

16.29

145.99

Feb-28

8

7.35

13.98

137.54

Jul-34

14

8.85

12.15

126.03

Mar-36

16

9.15

12.40

126.66

Apr-37

17

9.20

16.25

159.40

Apr-49

29

9.22

14.80

155.91

Rates are valid till 01:45pm today (7-Sep-2020)

*Please note that the minimum subscription for T-Bills is N20,000,000.00

 

Furthermore, based on the expected buoyant financial system liquidity, we expect more demand to offset sell pressures but also believe more investor interest may filter to primary offerings in the money market space. Thus, we expect a mixed performance and advise investors to cherry pick attractive bonds that advanced on the short and long-term end of the curve last week.

 

Proshare Nigeria Pvt. Ltd.


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