Bearish Performance Reversed as Average Yield Dips 32bps WoW to 3.7%

Proshare

Monday, March 30, 2020 /02:29 PM / By Afrinvest Research / Header Image Credit: The Sun

 

Trading activities in the Nigerian Treasury Bills ("NT-Bills") secondary market last week, began on a bullish note due to buoyant liquidity levels (N371.5bn in the positive as at Monday). This bullish run was further bolstered up by the absence of Primary Market Auction ("PMA") and Open Market Operations ("OMO") offers. However, as the week progressed, this demand tapered down as local investors moved to the side lines following increased concerns of the escalation of the COVID-19 outbreak in Nigeria (a jump from 36 to 84 confirmed cases by the NCDC between Monday and Friday).

 

Nevertheless, pockets of demand were witnessed along the short-end of the curve, as average yield contracted 40bps W-o-W to settle at 2.8%. Particularly, the 02-Jul-20 and 16-Jul-20 bills shed 115bps and 131bps W-o-W respectively. Overall, average yields across the curve dipped 32bps W-o-W to settle at 3.7% from 4.0% the previous week.

 

Going into the week, the CBN is expected to rollover N95.7bn worth of maturing NT-Bills at a PMA this Wednesday.

 

Please see more details below:

91-Day

182-Day

364-Day

Offer Amount (N)

10,000,000

17,600,581

68,080,464

Last Stop Rate (%)

2.300

3.400

4.600

Expected Stop Rate Range (%)

2.2% - 2.3%

3.2%-3.4%

4.4%-4.6%

 

In addition, we anticipate a cautious bullish sentiment in the NT-Bills secondary market amidst the continued spread of COVID-19 in the country, despite buoyant system liquidity (N520.9bn long as at Friday) along with the N95.0bn worth of maturing NT-Bills and OMO bills expected to hit the system.

We therefore advise investors to cautiously position in attractive offers along the curve, primary offers and possible commercial paper issuances.

 

Please see indicative secondary market NT-Bills rates below:

Maturity

Tenor (Days)

Rate (%) p.a.

Yield (%) p.a.

30-Apr-20

31

2.00

2.00

2-Jul-20

94

3.00

3.02

29-Oct-20

213

3.80

3.89

12-Nov-20

227

4.10

4.21

14-Jan-21

290

4.30

4.45

 

FGN Bonds Update: Average Yield Inches 19bps WoW to 12.0% due to Anticipated MPC Meeting Outcome and Bond Auction

The domestic bonds secondary market sustained its overall bearish outlook last week, while at the start of the week investors were relatively quiet in anticipation of the Monetary Policy Committee ("MPC") meeting outcome last Tuesday and the FGN bond auction which held last  Wednesday.

 

At the MPC meeting, the members voted to retain all policy parameters with more emphasis on the stimulus packages announced the previous week in a bid to mitigate the economic impact of the global pandemic and tumbled oil prices. As a result, average yield across the curve rose 19bps to settle at 12.0% from 11.8% the previous week, with a significant uptick witnessed on the 14-Mar-24 and 23-Mar-25 maturities advancing 165bps and 46bs respectively.

 

At the bonds PMA on Wednesday, the DMO's total offer was met with significant demand with a bid-to-cover ratio of 3.6x (N50.0bn offered vs. N181.3bn subscribed). Consequently, the DMO allotted 23.7%, 29.0% and 27.4% of subscriptions on the 5-Year, 10-Year and 30-Year re-opened offerings respectively due to higher range of bids by investors.

 

Please see a summary of the auction outcome below:

 

12.75% FGN APR 2023

12.5000% FGN MAR 2035

12.9800% FGN MAR 2050

Auction Date:

25-Mar-20

25-Mar-20

25-Mar-20

Tenors:

5-Year

15-Year

30-Year

Term-To-Maturity:

3 Years, 1 Month

15 Years

30 Years

Amount Offered:

N15.00 billion

N15.00 billion

N20.00 billion

Subscription:

N21.07 billion

N69.01 billion

N91.18 billion

Amount Allotted:

N5.0 billion

N20.0 billion

N25.0 billion

Range of Bids:

7.0000% - 13.5000%

10.0000% - 16.0000%

11.0000% - 15.1980%

Stop Rates:

10.0000%

12.5000%

12.9800%

Previous Stop Rates:

8.7500%

10.7000%

12.1500%

Bid to Cover Ratio:

1.4x

4.6x

4.6x

Allotment Ratio:

0.2x

0.3x

0.3x

 

Going into the week, we expect investors to remain wary given the expected further escalation of confirmed COVID-19 cases, however, we do not rule out some demand from investors in the secondary market as they seek to place their lost bids from the PMA. Thus, we advise investors to cautiously position in offers that inched higher along the curve.

 

Please see below FGN Bond rates:

Bond

Tenor (Years)

Yield (%)

Coupon (%)

Implied Price (N)

Jul-21

2

5.50

14.50

111.08

Jan-22

3

6.30

16.39

117.13

Apr-23

4

9.55

12.75

108.34

Mar-24

5

10.30

14.20

112.40

Mar-25

6

10.60

13.53

111.11

Jan-26

7

11.40

12.50

104.54

Mar-27

8

11.60

16.29

121.97

Feb-28

9

11.75

13.98

111.25

Jul-34

15

11.70

12.15

103.04

Mar-36

17

11.70

12.40

105.00

Apr-37

18

11.85

16.25

131.89

Apr-49

30

11.95

14.80

123.01

 

Proshare Nigeria Pvt. Ltd.


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