Average NT-Bills Yield Declines to 1.8%; PMA Holds this Wednesday

Monday, July 27, 2020 / 02:30 PM / By Afrinvest Research / Header Image Credit: Novarick Homes

The Nigerian Treasury Bills ("NT-Bills") secondary market traded actively last week, with bullish sentiments observed on the back of healthy system liquidity levels. Although system liquidity opened at N86.9bn on Monday, it rose to N470.4bn by Thursday following inflows from matured Open Market Operation bills ("OMO") (N25.4bn), Federal Account Allocation Committee ("FAAC") disbursements (c. N430.0bn) and bond coupon payments (c. N94.4bn).

Consequently, average yield across all tenors dipped 17bps W-o-W to close at 1.8% on Friday. Most of the trading activities occurred at the short- and mid-term bills while the long-term instruments traded relatively flat. Notably, the 15-Oct-20 (-55bps), 27-Aug-20 (-49bps) and 29-Oct-20 (-47bps) bills recorded the most buying interests.

At the Monetary Policy Committee ("MPC") meeting, the Committee retained the Monetary Policy Rate ("MPR") at 12.5% while also holding other monetary policy parameters constant. According to the MPC, this decision stemmed from the need to evaluate the effectiveness of the various monetary and fiscal measures recently deployed to address the economic downturns following the outbreak of the COVID-19 pandemic.

Going into the week, the Central Bank is scheduled to roll over maturing NT-Bills worth N266.0bn through a Primary Market Auction ("PMA") auction on Wednesday.

Please see below our PMA expectations:

Additionally, the Apex bank may likely conduct an OMO auction to keep rates and system liquidity in check. Thus, the anticipated inflow from bond coupon payments (c. N49.6bn) may not be sufficient to bolster liquidity. While this may slightly impact demand, we expect investors’ focus to be skewed towards the PMA.

Please see indicative secondary market NT-Bills rates below:

Rates are valid till 01:45pm today (27-Jul-2020)

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

FGN Bonds Update: Strong Demand Witnessed at Bond Auction as Average Yield in Secondary Market Contracts 50bps W-o-W

In line with expectations, the bonds market opened with investors trading cautiously ahead of the anticipated bond auction that held on wednesday. By midweek, market activities picked up following improved system liquidity and as market participants sought to invest their coupon payments amid limited alternatives. Overall, the market posted a bullish performance as demand further filtered into the market due to the quantum of unmet bids at the bond auction.

As a result, average yield across all tenors shed 50bps W-o-W to close at 7.3% on Friday. Particularly, the Jul-34, Jan-26, and the Mar-35 bonds witnessed the most bids; shedding 118bps, 111bps and 104bps respectively W-o-W.

At the bond auction, the Debt Management Office ("DMO") allotted a total of N177.0bn through the JAN-2026 (Re-opening), MAR-2035 (Re-opening), JUL-2045 (New Issue) and MAR-2050 (Re-opening) bonds. The DMO also issued an additional N1.5bn to non-competitive bids on the MAR-2050 bond at the same stop rate. The total amount raised (N178.5bn), represents a 37.3% increase on its scheduled offer of N130.0bn.

In more detail, total subscription was N398.2bn, translating to a subscription ratio of 3.1x as against 3.6x at the previous auction. Thus, average stop rates across the offerings declined to 8.8% (-113bps).

Please see more details in summary below:

This week, we anticipate more buying activities in the secondary market due to unfilled bids from last week's auction. Our recommendation is for investors to cherry pick bonds with attractive yields across the curve. 

Please see indicative secondary market bond rates below:

Rates are valid till 01:45pm today (27-Jul-2020)

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

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