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Average Yield in the NT-Bills Secondary Market Closes Flat as Weak Sentiments Persist

Bonds & Fixed Income	636 VIEWS
Bonds & Fixed Income
636 VIEWS

Monday November 23, 2020 / 2:03 PM / by Afrinvest Research / Header Image Credit: Bank Naija

In line with our expectation, the Nigerian Treasury Bills ("NT-Bills") market witnessed a quiet trading session last week as weak investor sentiments continue to drag activity in the space. Consequently, average yield across all tenors remained unchanged at 0.1% on Friday.

The long-term NT-Bills witnessed slight activities, with the 28-Oct-21 instrument (-2bps) recording the most buying interests. However, the short- and medium-term maturities traded flat with no change in yield compared to the previous week.

On Thursday, the Apex bank conducted an Open Market Operation ("OMO") auction where a total of N90.0bn was offered across the 124-day (N10.0bn), 180-day (N10.0bn) and 362-day (N70.0bn) instruments. The auction recorded a significant level of demand from investors as total bid-to-cover ratio stood at 4.7x (N90.0bn offer vs. N423.5bn subscription). Stop rates on the short, medium and long term instruments moderated to 2.44%, 5.48% and 6.75% respectively.

This week, the Central Bank of Nigeria ("CB") is slated to conduct a Primary Market Auction ("PMA") where a total of N130.6bn worth of NT-Bills will be offered across the 91-, 182- and 364- Day tenors.

Please see below our PMA expectations:

Tenor	91- Day	182 â€“ Day	364 - Day
Offer Amount (N)	20,372,790.00	19,157,656.00	91,071,723.00
Previous Stop Rate	0.04%	0.15%	0.30%
Expected Stop Rate Range	0.02% - 0.04%	0.10% - 0.13%	0.20% - 0.25%

This week, system liquidity will be bolstered by OMO maturities worth N65.6bn. We expect a sustenance of weak investors' participation in the secondary market while demand at the PMA is anticipated to remain elevated with more investors positioning on the longest tenor. Hence, stop rates across all instruments are expected to trend lower.

We advise investors to also look out for Commercial Paper offerings with relatively more attractive rates.

Please see indicative secondary market NT-Bills rates below:

Maturity	Tenor (Days)	Rate (%) p.a.	Yield (%) p.a.
28-Jan-21	66	1.10	1.10
11-Mar-21	108	1.65	1.66
13-May-21	171	2.18	2.20
15-Jul-21	234	2.60	2.64
16-Sep-21	297	2.89	2.96

Rates are valid till 01:45pm today (23-Nov-2020)

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

FGN Bonds Update: Bullish Run Persists as Average Yield Contracts by 11bps W-o-W to 4.0%

Although the FGN bond market started on a quiet note last week, activities picked up by Thursday following OMO maturities worth N281.5bn. Trickles of demand filtered into the market particularly at the short- and medium-term segments of the curve. By the end of the week, average yield across all instruments declined by 11bps W-o-W to close at 4.0%.

The DMO offered and sold a total of N80.0bn across two instruments - March 2035 and July-2045. Total subscription on both instruments came in at N184.7bn translating to a subscription rate of 2.3x. Stop rate on the 2035 bond advanced by 3bps to 5.000% while stop rate on the 2045 bond declined 22bps to 5.785%.

Please see more details in the table below:

	12.50% FGN MAR 2035	9.80% FGN JUL 2045
Tenors:	15-Yr Re-opening	25-Yr Re-opening
Term-To-Maturity:	14 Years, 4 Months	24 Years, 8 Months
Auction Date:	November 18, 2020	November 18, 2020
Issue Date	November 20, 2020	November 20, 2020
Amount Offered(N):	40.00 billion	40.00 billion
Subscription(N):	87.70 billion	97.04 billion
Amount Allotted(N):	40.00 billion	40.00 billion
Range of Bids:	3.1500% - 9.5000%	3.9500% - 9.0000%
Stop Rates:	5.0000%	5.7850%
Previous Stop Rates:	4.9700%	6.0000%
Bid to Cover Ratio:	2.2x	2.4x
Allotment Ratio:	0.5x	0.4x

The Monetary Policy Committee ("MPC") is scheduled to hold its last meeting for the year to discuss monetary policy directions today and tomorrow. We expect the Monetary Policy Rate ("MPR") to remain unchanged at 11.5%.

This week we anticipate a sustained bullish trend in the bonds market as investors with unfilled bids at the previous auction position in the secondary market further pressuring yields. Investors are advised to cherry pick instruments in the FGN bonds market with attractive yields and look out for investment-grade corporate bonds with relatively more attractive returns.

Please see indicative secondary market bonds rates below:

Bond	Tenor (Years)	Yield (%)	Coupon (%)	Implied Price (N)
Mar-25	5	1.10	13.53	152.45
Jan-26	6	2.55	12.50	147.82
Mar-27	7	2.85	16.29	177.17
Feb-28	8	3.05	13.98	170.58
Jul-34	14	4.25	12.15	181.16
Mar-36	16	4.25	12.40	191.06
Apr-37	17	4.30	16.25	239.58
Apr-49	29	5.00	14.80	247.84