Two-In-One Combo: DMO Cuts Stop Rates And Borrows 160% More At Bond Auction Amidst Healthy Demand

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Thursday, April 23, 2020 / 7:07 AM / By Zedcrest Capital / Header Image Credit: BBC

 

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FGN Bonds

The Bond Market traded on a soft note as anticipated, as attention shifted to today's Bond Primary Market Auction. Yields weakened across the bond curve opening as market participants anticipated increased supply from the auction leading to improved offers, most notably on the 2049s. The trend reversed just before the close of the session, as the level of demand at the auction became more apparent. Yields consequently compressed by c.35bps on the average across the benchmark curve.

 

At the bond auction, the DMO sold a total of c.N156bn across the three maturities on offer (2023s, 2035s, and 2050s), dropping stop rates by c.100bps, 50bps, and 48bps to close at 9.00%, 12.00%, and 12.50% respectively. With healthy demand, the DMO was able to comfortably raise 160% of its scheduled amount, with bid-to-cover ratios of 2.49X, 5.37X, and 5.93X across all 3 tenors.

 

We expect the secondary market to be open bullish in tomorrow's session, as investors look to cover bids lost especially on the 15- and 30-year maturities.


                 FGN Bonds Auction Result- Apr. 22, 2020

Maturity

Rate (%)

Offer (₦'bn)

Sub (₦'bn)

Sale (₦'bn) 

Apr-2023

9.00

20.00

49.70

30.07

Mar-2035

12.00

20.00

107.47

72.25

Apr-2050

12.50

20.00

118.50

53.74

 

                   Benchmark FGN Bonds

 

Description

Bid (%)

Offer (%)

Day Change (%)

 

14.50 15-Jul-21

6.70

5.11

(0.14)

 

16.39 27-Jan-22

7.98

5.90

(0.30)

 

12.75 27-Apr-23

9.68

8.89

(0.11)

 

14.20 14-Mar-24

9.49

8.92

(0.29)

 

13.53 23-Mar-25

10.84

9.62

(1.57)

 

12.50 22-Jan-26

11.76

10.60

(0.73)

 

16.29 17-Mar-27

11.94

11.55

(0.10)

 

13.98 23-Feb-28

12.06

11.55

0.00

 

14.55 26-Apr-29

12.14

11.72

0.03

 

12.15 18-Jul-34

12.37

11.86

0.00

 

12.40 18-Mar-36

12.40

11.83

(0.44)

 

16.2499 18-Apr-37

12.40

12.05

(0.48)

 

14.80 26-Apr-49

12.94

12.53

0.14

 

 

Treasury Bills

Rates in the OMO market dropped following sustained demand by local banks, supported by high system liquidity levels (c.N911bn). Rates traded at the higher 10% levels at the long-end of the OMO curve, as supply dwindled on those securities. Rates regained the previous session's losses, compressing by c.45bps on the average across the benchmark OMO curve.

The NTB side remained quiet, with retail demand driving rates downwards despite little volumes passed. Yields dropped by c.2bps across the benchmark NTB curve.

With the current system liquidity level, we expect demand to persist for OMO bills by local banks. Expected supply from an OMO auction should see rates retreat slightly in tomorrow's session.


                                  Benchmark OMO Bills

Description

Bid (%)

Offer (%)

Day Change (%)

NGOM 5/14/2020

9.00

7.50

(1.00)

NGOM 6/4/2020

9.00

6.00

(1.00)

NGOM 7/2/2020

9.25

7.00

(0.75)

NGOM 8/13/2020

9.50

7.00

(0.50)

NGOM 9/3/2020

10.25

8.50

0.00

NGOM 10/1/2020

10.00

8.00

0.00

NGOM 11/03/2020

10.00

8.00

(0.50)

NGOM 12/01/2020

10.00

8.50

(0.75)

NGOM 01/05/2021

11.00

10.00

(0.75)

NGOM 02/02/2021

10.90

9.00

(0.10)

NGOM 03/02/21

10.90

10.40

(0.10)

 

                                     Benchmark NTBills

Description

Bid (%)

Offer (%)

Day Change (%)

NIGTB 2-Jul-20

2.25

2.00

(0.05)

NIGTB 1-Oct-20

3.20

2.00

0.10

NIGTB 12-Nov-20

3.50

2.00

0.00

NIGTB 14-Jan-21

3.75

2.00

(0.05)

NIGTB 11-Feb-21

3.90

2.00

(0.10)

                                                                         


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Money Markets

System liquidity figures opened the session with c.N911.36bn positive, as money market rates further retreated by an average of c.35bps. The OBB and OVN rates consequently closed the day lower at 1.80% and 2.10% respectively.

The CBN is expected to float an OMO auction tomorrow to stem some excess liquidity but we do expect that much of an impact on market rates.


                      Money Market Rates

 

Current (%)

Previous (%)

Open Buy Back (OBB)

1.80

2.00

Overnight (O/N)

2.10

2.63


 

FX Market

At the Interbank, the Naira/USD and the SMIS rates remained unchanged to close at N361.00/$ and N380.69/$ respectively. At the I&E FX window, the closing rate for the Naira consolidated its gains from the previous session, appreciating by N2.00 N383.00/$.

At the parallel market segment, the cash and transfer rates remained stable to close at N416.00/$ and N435.00/$ respectively.


                                  FX Market

Current (N/$)

Previous ( N/$)

CBN Spot

 361.00

 361.00

CBN SMIS

 380.69

 380.69

I&E FX Window

 383.00

 385.00

Cash Market

 416.00

 416.00

Transfer Market

 435.00

 435.00

 

Eurobonds

The NGERIA Sovereigns opened the session on a negative note, as BRENT crude oil traded 10% lower in the early hours of the day. The sovereign papers reversed some of those losses by mid-day, mirroring the recovery seen in crude oil prices following tweets on Iran by US President, Donald Trump. The 2047s and 2049s papers were the top gainers, as yields on those papers dropped by c.5bps each. Overall,  yields expanded by c.5bps on the average across the benchmark curve, slightly distorted by yields on the 2021s as it pulls closer to maturity.

The NGERIA Corps papers also saw some gains, as we noted improved demand especially on the FIDBAN 2022s paper.


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