Bearish Sentiments Halt as Improved Demand from Local Investors Pushes Average Yield Down to 13.8%

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Monday, September 02, 2019   /12:21PM  / Afrinvest Research / Header Image Credit: Nairabarter

 

The bearish sentiments in Treasury Bills ("T-Bills") secondary market ceased last week, following robust system liquidity (c. N704.1bn positive as at Friday) that incited local demand across the yield curve. As a result, activities were largely bullish during the five trading sessions of the week as investors rallied for higher yields despite the CBN intervention at the Primary Market auction("PMA")  on Wednesday as well as its Open Market Operations ("OMO")  auction on Thursday and Friday.

Major buying interests were witnessed at the short and medium end of the curve, particularly the 5-Dec-19 (-231bps), 9-Jan-20 (-228bps) and 24-Oct-19 (-205bps) maturities. Consequently, average yield across all tenors contracted by 140bps W-o-W to settle at 13.8% from 15.2% the previous week.

At the PMA which held on Wednesday, the CBN offered N208.bn worth of T-Bills as against the N347.8bn total subscription, translating to a bid to cover ratio of 1.7x vs 4.3x at the previous auction. All tenors were oversubscribed with the 364-day instrument enjoying the most interest. Consequently, the marginal rates across all tenors inched higher by 1.4%, 0.2% and 0.9% respectively as the CBN fully allotted to the total amount offered.

 

Please see a detailed summary in the table below:

Auction Date

28-Aug-19

28-Aug-19

28-Aug-19

Allotment / Issue Date

29-Aug-19

29-Aug-19

29-Aug-19

Tenor

91-Day

182-Day

364-Day

Offer Amount (N)

24,372,790,000

38,751,846,000

145,475,021,000

Total Subscription (N)

29,077,546,000

46,150,870,000

272,541,557,000

Allotment (N)

24,372,790,000

38,751,846,000

145,475,021,000

Range of Bid Rates (%)

9.2000-12.4990

11.000-15.000

11.8922-14.3199

Stop Rates (%)

11.1000

11.5878

12.8900

Previous Stop Rates (%)

9.7000

11.3500

12.0000

Bid-to-Cover Ratio

1.2x

1.2x

1.9x

Allotment Ratio

1.0x

1.0x

1.0x


  

On Thursday, the CBN conducted an OMO auction, offering a total of N400.0bn across the 91, 189 and 364day instruments. However, subscription levels remained scanty despite an increase in the stop rates, as investors preferred more attractive rates in the secondary market. Thus, the three tenors offered recorded a bid-to-cover ratio of 0.13x, 0.07x and 1.45x, respectively.

Similarly, the CBN's OMO intervention on Friday saw a total offering of N400bn, albeit across the 90, 188 and 363day instruments. This was met with a total subscription of N237.13bn, showing a 0.05x, 0.03x and 1.14x bid to cover ratio across the short, medium and long-term bills respectively. Notwithstanding, stop rates trended closely to that of the previous day auction, save for the 364day bill which improved slightly.

Going into this week, we expect the momentum in demand to be sustained as inflows from maturing OMO bills (N204.1bn) is expected to hit the financial system which will further bolster liquidity. Nevertheless, we expect the CBN to maintain its pace of excess liquidity mop-ups to keep system liquidity in check.

Investors are therefore advised to take position in T-Bills and OMO offers with attractive yields.

 

Please see indicative secondary market T-Bills rates below:

Maturity

Tenor (Days)

Rate (%) p.a.

Yield (%) p.a.

5-Dec-19

94

11.50

11.85

16-Jan-20

136

11.90

12.45

27-Feb-20

178

12.00

12.75

16-Apr-20

227

11.55

12.44

13-Aug-20

346

12.50

14.18

OMO Auction

c.100

10.50

10.81

OMO Auction

c.200

11.00

11.71

OMO Auction

c.350

12.90

14.72


Rates are valid till 01:45pm today (2-Sept-2019)

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


FGN Bonds Market Update: Renewed local demand Pressures Average Yield down by 40bps W-o-W.

In the bonds space, performance mirrored the bullish T-Bills markets as domestic investors took position across the yield curve coupled with a reduced momentum in sell-offs by foreign investors. Consequently, average yield declined 40bps to settle at 14.0% from 14.4% the previous week.

Major buying interests were witnessed at the short and medium tenors, particularly the 14-Feb-20 (-170bps), 14-Mar-20 (-155bps) and 27-Jan-22 (-60bps) maturities.

Going into this week, The Debt Management Office ("DMO") is scheduled to auction the 2 and 3-year tenor FGN savings bond for the month of September at 11.150% and 12.150% respectively.

Furthermore, we expect the spill-over effect from the T-Bills market to drive momentum in the Bonds market on the back of improved system liquidity. Investors are therefore advised to take advantage of bonds with attractive yields and trading at a discount.


Please see indicative bond rates for today below:

Bond

Tenor (Years)

Yield (%)

Coupon (%)

Implied Price

Jul-21

2

13.65

14.50

101.31

Jan-22

3

14.00

16.39

104.69

Apr-23

4

13.95

12.75

96.61

Mar-24

5

13.85

14.20

101.14

Mar-25

6

13.80

13.53

98.95

Jan-26

7

14.05

12.50

93.57

Mar-27

8

14.10

16.29

109.94

Feb-28

9

14.10

13.98

99.41

Jul-34

15

14.35

12.15

86.58

Mar-36

17

14.35

12.40

87.77

Apr-37

18

14.35

16.25

112.04

Apr-49

30

14.45

14.80

102.33

 

Rates are valid till 01:45pm today (2-Sept-2019)

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


Proshare Nigeria Pvt. Ltd.


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Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.

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