Average Yield Pressured to 10.5% on Sustained Demand Buoyed by Robust System Liquidity

Proshare

Monday, July 22, 2019  / 02:30PM / By Afrinvest Research/ Header Image Credit: 

 

Last week, the Treasury bills secondary market sustained its bullish run for the fifth consecutive week as system liquidity remained elevated (N302.9bn as at Friday) amidst the Primary Market Auction (“PMA”) and OMO auction conducted by the Apex bank during the week. Thus, average yield across all tenors dipped 62 bps W-o-W to settle at 10.5%. Major buying interests were witnessed at the short and medium end of the curve, particularly the 12-Sept-19 (-223bps), 21-Nov-19(-148bps) and 13-Feb-20 (-121bps) maturities.

At the PMA which held on Wednesday, the Central Bank of Nigeria (“CBN”) offered N129.6bn worth of T-Bills as against the N473.5bn total subscription, translating to a bid to cover ratio of 4.4x. All tenors were oversubscribed with the 364-day instrument enjoying the most interest. Consequently, the marginal rates across all tenors declined by 0.9%, 1.0% and 0.8% respectively.

 

Please see a detailed summary in the table below:

Auction Date

17-Jul-19

17-Jul-19

17-Jul-19

Allotment / Issue Date

18-Jul-19

18-Jul-19

18-Jul-19

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)

29,153,669,000

 69,628,114,000

374,767,599,000

Allotment (N)

5,849,034,000

26,600,000,000

74,598,126,000

Range of Bid Rates (%)

9.0000-11.0000

10.2500-12.000

10.7000-12.5000

Stop Rates (%)

9.7400

10.7500

11.1390

Previous Stop Rates (%)

10.50

11.70

11.91

Bid-to-Cover Ratio

5.0x

2.6x

5.0x

Allotment Ratio

0.2x

0.4x

0.2x

 

Furthermore, the CBN resumed its customary OMO intervention on Thursday (the 3rd OMO auction in July), albeit offering a total of N75bn across the 91-day, 182-day and 364- day tenors. This was met with a total subscription of N475.1bn, showing a 4.1x, 3.8x and 7.5x bid to cover ratio across the short, medium and long-term bills respectively. Notwithstanding, the CBN prevented banks from purchasing OMO bills at the auction, stating that orders should be backed by customer demand. 

Going into this week, we expect inflows from maturing OMO bills (N90bn) to hit the financial system which will further bolster liquidity. Consequently, we expect the CBN to maintain its pace of excess liquidity mop-ups to keep system liquidity in check.

In addition, the Monetary Policy Committee (“MPC”) is scheduled to meet today, 22nd July 2019 and tomorrow, Tuesday, 23rd July 2019. We expect the MPC to maintain status quo by keeping all key policy rates unchanged. Investors are therefore advised to take advantage of the “Special” OMO Auctions at attractive yields, relative to the secondary market rates, as the CBN may sustain its new policy that precludes banks from buying OMO bills into their position (proprietary trading).


Please see indicative secondary market T-Bills rates below:

Maturity

Tenor (Days)

Rate (%) p.a.

Yield (%) p.a.

10-Oct-19

80

7.80

7.94

5-Dec-19

136

9.00

9.31

2-Jan-20

164

9.50

9.92

20-Feb-20

213

10.00

11.62

19-Mar-20

241

10.40

11.17

 

FGN Bonds Update: Average Yield Contract 35bps W-o-W on Improved Demand; Bond Primary Auction Holds This Wednesday 

In the Bond market last week, activities remained bullish owing to improved demand that stemmed from the declining yield environment in the T-Bill secondary market. Thus, average yields declined 35bps W-o-W to settle at 12.5% from 12.9% the previous week. Major buying interests were recorded on the short end of the yield curve particularly the 23-Oct-19 (-98bps), 15-Nov-19 (-86bps) and 11-Jul-20 (-57bps) maturities. 

This week, the Debt Management Office (DMO) is expected to offer N145.0bn at the FGN Bond auction- comprising of N40.0bn of the APR-2023 (reopening), N50.0bn of the APR-2029 (reopening), and N55.0bn of the APR 2049 (reopening) –to investors.

 

Please see details of this week’s auction below:

BOND

12.75% FGN APR 2023 (5- Yr Re-opening)

14.55% FGN APR 2029 (10-Yr Re-opening)

14.80% FGN APR 2049 (30- Yr Re-opening)

Term-To-Maturity

3 Years 9months

9 Years 9months

29 Years 9months

Amount on Offer

N40.0bn

N50.0bn

N55.0bn

 

 

Going into this week, we expect to see a quiet trading session, as investors anticipate the outcome of the MPC meeting on Tuesday and more importantly the bond auction on Wednesday. Investors are therefore advised to take advantage of bonds with attractive yields and trading at a discount as well as primary offers in the FGN Bond spaces.

 

Please see indicative FGN bond rates below:

Bond

Tenor (Years)

Yield (%)

Coupon (%)

Implied Price

Jul-21

2

12.5

14.5

103.41

Jan-22

3

12.56

16.39

108.05

Apr-23

4

13.05

12.75

99.08

Mar-24

5

13.05

14.2

103.87

Mar-25

6

12.8

13.53

102.83

Jan-26

7

13.5

12.5

95.76

Mar-27

8

13.6

16.29

112.49

Feb-28

9

13.55

13.98

102.11

Jul-34

15

13.97

12.15

88.68

Mar-36

17

13.97

12.4

89.9



Proshare Nigeria Pvt. Ltd.

 

Related News

1.       Bond Yields Retrace Higher Following Q3 FGN Bond Calendar Release

2.      Invest in FGN Monthly Bond Auction – July 2019

3.      NAFEX Rate Trends Higher as Offshores Take Profit on Bills

4.      Bond Yields Trend Lower as Market Players Re-Invest Coupon Inflows

5.      CBN Treasury Bill Auction Scheduled For July 17th, 2019

6.      Offshore Investors Rally 10-Year Bond following Decline in CPI Inflation

7.      Average Money Market Rate Went Down By 1.65% To Settle At 2.57% From 4.22%

8.     Bullish Momentum Sustained as Average T-Bills Yield Contracts 80bps to 11.1%

9.      Coupon Payments to Sustain Demand Interests on FGN Bonds

10.  DMO Releases Q1 2019 Public Debt Data – Marginal Increase of 2.3% in Total Public Debt Recorded

11.   Dangote Cement Plc Series 11, 12 and 13 Commercial Paper Opens



Proshare Nigeria Pvt. Ltd.

READ MORE:
Related News
SCROLL TO TOP