Bonds & Fixed Income | |
Bonds & Fixed Income | |
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Monday, December 02, 2019 / 02:59 PM /
by Afrinvest Research / Header Image Credit: BookKeeper
The
Nigerian Treasury Bills ("NT-Bills") secondary market maintained its
bullish streak last week, as investors demand intensified towards the end of
the week following the results of the Primary Market Auction ("PMA")
which held mid-week. As a result, average yield across tenors maintained its
southward trajectory, declining 1.4% W-o-W to 7.3% from 8.7% the previous week.
Recording the most significant declines were the short- and mid-tenured bills,
buoyed by strong demand from investors on the 02-Jan-20 (-5.9% W-o-W)
and 16-Apr-20 (-6.5% W-o-W) bills.
At the last Monetary Policy Committee ("MPC") of the Central Bank
of Nigeria's ("CBN") meeting of the year which ended on Tuesday, the
Committee retained all policy rates.
On
Wednesday, the Debt Management Office ("DMO") through the CBN held a PMA
where a total of N150.6bn was offered across the 91-, 182- and 364-day
tenors. This offer was met with significant demand, recording a bid-to-cover
ratio of 3.5x (N533.9bn subscribed). The mid- and short-term offers
witnessed the most buying interest with a bid-to-cover ratio of 4.6x (N24.4bn
offered vs. N106.9bn subscribed) and 4.4x (N23.2bn offered vs. N107.6bn
subscribed) respectively, while the 364-day tenor had a bid-to-cover ratio of
3.1x (N103.1bn offered vs. N319.4bn subscribed). Expectedly, the
stop rates further waned across the short, medium and long offers to 6.495%,
7.230% and 8.370% respectively.
Please
see PMA results below:
Auction Date |
27-Nov-19 |
27-Nov-19 |
27-Nov-19 |
Allotment / Issue Date |
28-Nov-19 |
28-Nov-19 |
28-Nov-19 |
Tenor |
(91-Day) |
(182-Day) |
(364-Day) |
Offer Amount ( |
24,372,790,000 |
23,157,656,000 |
103,071,723,000 |
Subscription ( |
106,878,497,000 |
107,627,970,000 |
319,419,121,000 |
Allotment ( |
20,372,790,000 |
19,157,656,000 |
111,071,723,000 |
Range of Bid Rates (%): |
6.0000 - 12.0000 |
6.7000 - 11.5000 |
7.7100 - 14.4000 |
Stop Rates (%): |
6.495 |
7.23 |
8.37 |
Previous Stop Rates (%): |
7.80 |
9.00 |
10.00 |
Bid-to-Cover Ratio: |
4.4x |
4.6x |
3.1x |
Allotment Ratio: |
0.2x |
0.2x |
0.3x |
On Thursday at the CBN's customary Open Market Operation ("OMO")
mop-up attempt, there was strong demand from foreign investors and the banks,
as a bid-to-cover ratio of 1.8x was recorded on its 355-day tenor (N150.0bn
offered vs. N281.5bn subscribed) while tightening clearing rate for the
long offer to 13.1% from its previous 13.3%.
Maturity |
Tenor (Days) |
Rate (%) p.a. |
Yield (%) p.a. |
2-Jan-20 |
31 |
6.65 |
6.69 |
30-Jan-20 |
59 |
6.75 |
6.82 |
2-Apr-20 |
122 |
7.95 |
8.17 |
13-Aug-20 |
255 |
8.70 |
9.26 |
24-Sep-20 |
297 |
9.00 |
9.71 |
29-Oct-20 |
332 |
9.40 |
10.28 |
Going
into week, we expect to see significant activities on the buy side as investors
seek to place funds amidst limited investment options as N45.0bn worth
of maturing NT-Bills and N344.9bn OMO bills are scheduled to hit the
financial system this week as well as unmet bids from last week's PMA. Despite
the dampened N-TBills yields, we advise investors with short term investment
horizon to invest in T-Bills due to its risk- and tax-free nature relative to
other short-term investments. In addition, short term FGN Bonds (2-3 TTM)
present a very good investment alternative to N-TBills.
FGN Bonds Market Update: Bullish Momentum Sustained as Investors Demand
Drives Yield Southwards by 22bps W-o-W to 12.1%
Last
week in the bonds market, trading began on a cautious note as investors
anticipated the outcome of the MPC meeting which held on Monday and Tuesday
where all parameters were maintained at their current levels. However,
investors traded more actively in subsequent trading sessions, cherry-picking
the most attractive yielding instruments with the 13-Feb-2020 (-191bps
W-o-W) maturity enjoying the most demand. Consequently, average yield across
all maturities dipped by 22bps to 12.1% from 12.3% the previous week.
Please
see below FGN Bond Rates:
Bond |
Tenor (Years) |
Yield (%) |
Coupon (%) |
Implied Price (N) |
Jul-21 |
2 |
9.70 |
14.50 |
107.77 |
Jan-22 |
3 |
9.80 |
16.39 |
113.49 |
Apr-23 |
4 |
11.10 |
12.75 |
105.98 |
Mar-24 |
5 |
10.80 |
14.20 |
113.19 |
Mar-25 |
6 |
10.80 |
13.53 |
112.92 |
Jan-26 |
7 |
11.15 |
12.50 |
108.15 |
Mar-27 |
8 |
11.30 |
16.29 |
127.17 |
Feb-28 |
9 |
11.75 |
13.98 |
114.35 |
Jul-34 |
15 |
11.90 |
12.15 |
105.24 |
Mar-36 |
17 |
11.95 |
12.40 |
106.90 |
Apr-37 |
18 |
11.90 |
16.25 |
136.30 |
Apr-49 |
30 |
12.57 |
14.80 |
121.86 |
Going
into the week, we do not anticipate this bullish momentum to halt as investors
continue to seek higher yielding instruments following the affirmation of the
CBN's policy barring local players from participating in OMO instruments. In
addition, we expect the DMO to offer an FGN Savings Bond auction this week, and
thus advise investors to take advantage of maturities with the most attractive
yields across the curve.
To indicate your interest and for further
enquiries, kindly send an email to brokerageteam@afrinvest.com.
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