PMA Records Strong Demand as Average NT-Bills Yield Declines to 1.9%; Bond PMA Holds this Wednesday

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Monday, July 20 2020  12:15 PM / Afrinvest Research / Header Image Credit: Proshare


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Activity level in the Nigerian Treasury Bills ("NT-Bills") secondary market last week remained sluggish as weak sentiments persisted in 4 out the 5 trading sessions. Despite the improved system liquidity at the start of the week (N150.2bn), investors stayed on the sidelines in anticipation of the Primary Market Auction ("PMA") that held on Wednesday. However, on Friday, activities picked up following inflows from Open Market Operation ("OMO") maturities as well as unfilled PMA bids that filtered into the secondary market.

 

Consequently, average yield across all tenors dipped 19bps W-o-W to close at 1.9% as volume of bids outweighed offers. Most of the trading activities occurred on the intermediate bills while the short- and long-term instruments traded relatively flat. Notably, the 11-Feb-20 (-103bps), 28-Jan-21 (-99bps) and 14-Jan-21 (-95bps) bills recorded the most buying interests.

 

At the PMA, the CBN’s total offer of N107.0bn across the 91-,182- and 364-day tenors witnessed strong demand of N189.1bn, translating to a bid to cover ratio 1.8x (vs 3.7x at the previous auction). All tenors were oversubscribed with the short-term instrument enjoying the most buying interest at 4.7x. However, the Apex bank only allotted the total amount offered as stop rates declined 49bps, 11bps and 4bps, respectively.

 

Please see a detailed summary of the PMA in the table below:

Auction Date

15-Jul-20

15-Jul-20

15-Jul-20

Allotment / Issue Date

16-Jul-20

16-Jul-20

16-Jul-20

Tenor

91-Day

182-Day

364-Day

Offer Amount (N)

5,849,034,000

26,600,000,000

74,598,126,000

Total Subscription (N)

27,688,570,000

63,055,020,000

98,399,306,000

Allotment (N)

8,849,034,000

26,600,000,000

71,598,126,000

Range of Bid Rates (%)

1.0000 - 2.2400

1.5000 - 4.0100

2.5500 - 12.8000

Stop Rates (%)

1.3000

1.8000

3.3500

Previous Stop Rates (%)

1.789

1.91

3.39

Bid-to-Cover Ratio

4.7x

2.4x

1.3x

Allotment Ratio

0.3x

0.4x

0.7x

 

This week, combined inflows from maturing OMO bills (N20.3bn), bond coupon payments (c. N 59.2bn) and Federal Account Allocation Committee ("FAAC") disbursements are expected to further bolster system liquidity (c. N 442.5bn long as at Friday). Barring any CRR debit by the CBN, we also expect trading activities to improve as investors seek to re-invest maturing funds amid limited money market options.

 

More so, the Monetary Policy Committee ("MPC") of the CBN is scheduled to meet today to review economic conditions and determine the Monetary Policy Rate ("MPR") alongside other monetary policy parameters. We recall that the June Inflation data released by the National Bureau of Statistics last week Friday indicated a 10th consecutive monthly increase in headline inflation to 12.56% Y-o-Y. Given the dovish considerations of the MPC at it last meeting in March (where the MPR was reduced to 12.5%), we expect the MPR to be kept unchanged in a bid to manage the delicate balance between supporting a post COVID-19 recovery and maintaining price stability. Nonetheless, we also do not rule out the possibility of the CBN employing its unorthodox policy measures.

 

Please see indicative secondary market NT-Bills rates below:

Maturity

Tenor (Days)

Rate (%) p.a.

Yield (%) p.a.

27-Aug-20

38

2.60

2.61

24-Sep-20

66

3.40

3.42

26-Nov-20

129

4.30

4.37

14-Jan-21

178

4.48

4.58

11-Feb-21

206

4.70

4.83

Rates are valid till 01:45pm today (20-Jul-2020)

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

 

FGN Bonds Update: Bearish Sentiments Reverse as Average Yield Declines to 7.8%; DMO Set to Raise N130.0bn this Wednesday

In line with expectations, the bonds market opened last week with bullish sentiments spread across the yield curve as local investors sought to re-invest their coupon payments amid limited alternatives. Demand further persisted into the remaining trading sessions following the release of the third quarter bond issuance calendar by the Debt Management Office ("DMO"). As a result, average yield across all tenors shed 15bps W-o-W with most flows skewed to the Mar-24 (-53bps), Jul-34 (-40bps) and Mar-50 (-37bps) bonds.

 

According to the DMO, a total of N340.0bn - N460.0bn is expected to be raised across a new 25-year bond issuance alongside the reopening of existing 10, 15, and 30-year instruments during this quarter. So far, the DMO has raised c.66% of its planned domestic borrowings for the fiscal year and we believe the ample liquidity from OMO maturities this quarter (c. N2.0 trillion) will enable it meet its target at favorable rates.

 

Looking ahead, the DMO is scheduled to conduct its first PMA for the quarter this Wednesday. A total of N95.0bn is scheduled to be re-opened across the 10-Year, 15-Year and 30-Year tenors while N35.0bn worth of bonds will be issued on the new 2045 instrument.

 

Please see details of the auction below:

BOND

12.50% JAN 2023

12.50% MAR 2035

JUL 2045

12.50% MAR 2050

10-Yr Re-opening

15-Yr Re-opening

25-Yr New Issue

30-Yr Re-opening

Term to Maturity

5 Years, 6 months

14 Years, 8months

25 Years

29 Years, 8months

Offer Amount (bn N)

25,000,000,000

35,000,000,000

35,000,000,000

35,000,000,000

Previous Stop Rates

10.7000%

11.000%

NIL

12.1500%

 

We expect a quiet trading session today as investors trade cautiously ahead of anticipated supplies at the bond auction. Nevertheless, market activities should pick up towards the end of the week as improved system liquidity continues to fuel local demand seeking to cherry pick bonds with attractive yields in the secondary market.

 

Please see indicative secondary market bond rates below:

Bond

Tenor (Years)

Yield (%)

Coupon (%)

Implied Price (N)

Jan-22

2

2.40

16.39

120.76

Apr-23

3

3.00

12.75

125.72

Mar-24

4

3.15

14.20

137.80

Mar-25

5

4.60

13.53

137.16

Jan-26

6

6.20

12.50

129.01

Mar-27

7

7.25

16.29

147.04

Feb-28

8

7.25

13.98

138.76

Apr-29

9

7.35

14.55

145.90

Jul-34

14

8.70

12.15

127.61

Mar-36

16

8.75

12.40

130.78

Apr-37

17

8.85

16.25

163.96

Apr-49

29

9.68

14.80

149.36

Rates are valid till 01:45pm today (20-Jul-2020)

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


 Proshare Nigeria Pvt. Ltd.


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Proshare Nigeria Pvt. Ltd.


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