Average Yield on NT-Bills Declines 11bps WoW, PMA Holds Today

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Wednesday, May 27, 2020 / 01:03 PM / By Afrinvest Research / Header Image Credit: BizWatchNigeria

 

In line with our expectation, sentiments in the Nigerian Treasury Bills ("NT-Bills") secondary market were mixed albeit with mild bullish bias. Buying interests were witnessed at the start of the week following an inflow (c. N190.0bn) from the Federation Accounts Allocation Committee ("FAAC") which bolstered system liquidity (N590.8bn long on Monday).


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Despite the release of April's CPI (Consumer Price Index) data which indicated that inflation rose by 8bps to 12.34% Y-o-Y, average yield across all tenors dipped 11bps W-o-W to close at 2.2% on Friday. Buying interests were observed across the mid and long-term instruments particularly the 27-Aug-20 (-59bps) and 10-Sep-20 (-44bps) maturities while yields on the short-term instruments closed flat.

 

A Primary Market Auction ("PMA") is scheduled to hold today and the CBN is expected to roll over maturing NT-Bills worth N59.4bn.

 

Please see details of our expectations below:

Tenor

91-Day

182-Day

364-Day

Offer Amount (N)

20,372,790,000

19,157,656,000

19,842,352,000

Last Stop Rate (%)

2.5000

2.8500

3.8400

Expected Stop Rate Range (%)

2.3000 - 2.6000

2.7000 - 3.0000

3.6000% - 4.0000

 

Furthermore, the Monetary Policy Committee ("MPC") is scheduled to meet on Thursday to discuss monetary policy parameters. We expect the MPC to retain all policy rates at current levels while it continues to utilize other strategies to control interest rates. The elephant in the room will be the stability and liquidity of the exchange rate. That said, we expect the outcome of the meeting to impact activities in the NT-Bills and Bonds market this week.

 

Going into this week's 3-day trading session, OMO and NT-Bills maturities worth N305.7bn and N59.4bn respectively are expected to hit the system further buoying liquidity levels. The outcome of the PMA today will shape activities in the NT-Bills market for the rest of the week as we expect stop rates to inch higher across board. Our recommendation is for investors to trade cautiously while taking advantage of attractive opportunities along the yield curve as well as corporate offerings such as available commercial papers.


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Please see indicative secondary market NT-Bills rates below:

Maturity

Tenor (Days)

Rate (%) p.a.

Yield (%) p.a.

16-Jul-20

50

2.60

2.61

27-Aug-20

92

3.75

3.79

24-Sep-20

120

3.95

4.00

26-Nov-20

183

4.45

4.55

28-Jan-21

246

4.65

4.80

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

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

 

FGN Bonds Update: DMO offers 7-year Sukuk Bond at a rental rate of 11.2%; Strong Demand Witnessed at Bond Auction as Average Yield in Secondary Market Contracts by 15bps W-o-W

 

The bearish trend in the bonds space finally stilled last week as a result of improved demand due to the bond offer circular that was released by the Debt Management Office ("DMO"). The week started off with minimal trading activities as investors traded cautiously in anticipation of the bond auction slated for Wednesday. By the end of the week, demand filtered into the market following the quantum of unmet bids at the bond auction.

 

As a result, average yield across the curve shed 15bps W-o-W to close at 10.4% on Friday. The short end of the curve particularly the 14-Mar-24 (-71bps), 23-Mar-25 (-47bps), and 17-Mar-27 (-31bps) maturities had the most buying interests.

 

At the bond auction, the Debt Management Office ("DMO") raised a total of N296.2bn across the APR-2023 (reopening), MAR-2035 (reopening), and MAR-2050 (reopening) bonds, representing a 393.7% increase on its scheduled offer of N60.0bn. The DMO also issued an additional N94.5bn to non-competitive bids on the 2023 and 2035 bonds at the same stop rates.

 

The result showed a total subscription of N425.2bn, translating to an overall bid to cover ratio of 7.1x as opposed to 4.6x at the previous auction which held on 22-Apr-20. Consequently, stop rates on the 2023 and 2050 bonds advanced to 9.2% (+2bps) and 12.6% (+1bps) respectively while stop rate on the 2035 bond declined to 11.7% (-3bps).

 

Please see a summary of the auction outcome below:

Bonds

12.75% FGN APR 2023

(Re-opening)

12.50% FGN MAR 2035

(Re-opening)

12.98% FGN MAR 2050

(Re-opening)

Auction Date

20-May-20

20-May-20

20-May-20

Allotment / Issue Date

22-May -20

22-May -20

22-May -20

Term to maturity

2 years, 11 months

14 years, 10 months

29 years, 10 months

Offer Amount (N)

20,000,000,000.00

20,000,000,000.00

20,000,000,000.00

Total Subscription (N)

81,890,000,000.00

154,100,000,000.00

189,190,000,000.00

Allotment (N)

67,370,000,000.00

68,730,000,000.00

160,100,000,000.00

Range of Bid Rates (%)

7.0000 - 12.7500

9.4000 - 14.0000

11.0500 - 13.7443

Stop rates (%)

9.2000

11.7000

12.6000

Previous stop rates (%)

9.0000

12.0000

12.5000

Bid-to-Cover Ratio

4.1x

7.7x

9.5x

Allotment Ratio

0.8x

0.4x

0.8x

  

This week, we expect sustained buying interests in the secondary market due to the unfilled bids from last week's auction. Our recommendation is for investors to position in bonds with attractive yields across the curve. We further advise investors with a longer-term perspective to take advantage of the 7-year Sukuk Bond offer at a rental rate of 11.2%. which closes on Tuesday, June 2, 2020.


Please see indicative FGN bond rates below:

Bond

Tenor (Years)

Yield (%)

Coupon (%)

Implied Price

Jul-21

1

3.90

14.50

111.65

Jan-22

2

4.55

16.39

118.80

Apr-23

3

7.95

12.75

112.27

Mar-24

4

7.60

14.20

121.39

Mar-25

5

7.75

13.53

122.86

Jan-26

6

9.20

12.50

114.27

Mar-27

7

9.69

16.29

132.29

Feb-28

8

9.60

13.98

123.51

Apr-29

9

9.90

14.55

127.10

Jul-34

14

10.30

12.15

113.59

Mar-36

16

10.50

12.40

114.47

Apr-37

17

10.50

16.25

145.01

Apr-49

29

11.60

14.80

126.50

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

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

 

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