Bonds & Fixed Income | |
Bonds & Fixed Income | |
3565 VIEWS | |
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The bearish sentiment in the T-Bills secondary market persisted last week due to further sell-offs by offshore players on the back of current pressures in the Emerging markets. Moreover, institutional investors also repositioned ahead of Primary Market Auction (PMA) on Wednesday. Consequently, average rates across the curve advanced19bps W-o-W to close at 11.7%. Rates on short-term instruments closed marginally up, inching 4bps W-o-W while medium and long-term instruments advanced 26bps and 30bps respectively.
In
line with our PMA expectation (detailed result below), the 364-day bill was
1.8x oversubscribed leading to an 8bps decline in the stop rate. However, the
91 and 182-day stop rates remained unchanged.
Auction Date |
15-Aug-18 |
15-Aug-18 |
15-Aug-18 |
Allotment
/ Issue Date |
16-Aug-18 |
16-Aug-18 |
16-Aug-18 |
Tenor |
(91-Day) |
(182-Day) |
(364-Day) |
Offer
Amount ( |
3,384,180,000.00 |
10,000,000,000.00 |
20,000,000,000.00 |
Total
Subscription ( |
3,384,180,000.00 |
10,050,001,000.00 |
36,033,914,000.00 |
Allotment
( |
3,384,180,000.00 |
10,000,000,000.00 |
20,000,000,000.00 |
Range
of Bid Rates (%): |
9.8000
– 10.0000 |
10.0000
– 13.7500 |
10.5000
– 15.0000 |
Stop
Rates (%): |
10.00 |
10.40 |
11.22 |
Allotment
Ratio |
1.0x |
1.0x |
0.6x |
Subscription
Ratio |
1.0x |
1.0x |
1.8x |
Furthermore, in an OMO Auction on Thursday, the
CBN also offered N450.0bn to mop up excess system liquidity caused by
inflow of maturing funds. This was however undersubscribed with 75.3% allotted
for the 91-day instrument (N100.0bn offered
vs N 24.7m subscribed) and 38.6% (N 350.0bn offered vs N
128.9bn subscribed) on the 203-day instrument. This may be partly attributed to
the earlier than usual auction announcement (9:10am) causing some investors to
miss out.
Please see secondary market indicative rates for
today below:
Maturity |
Tenor
(Days) |
Rate
(%) p.a. |
Yield
(%) p.a. |
20-Sep-18 |
31 |
8.20 |
8.26 |
01-Nov-18 |
73 |
10.00 |
10.20 |
13-Dec-18 |
115 |
11.00 |
11.39 |
03-Jan-19 |
136 |
11.10 |
11.58 |
21-Feb-19 |
185 |
11.40 |
12.10 |
OMO
Auction |
240-300 |
11.30 |
12.21 |
We expect the first few trading sessions of this
week would be dominated by buying interest on the back of buoyant system
liquidity N 661.1bn (as at Friday last week). Moreover, N 364.3bn worth of maturing
OMO is scheduled to hit the financial system on Thursday further spurring
system liquidity. Thus, we believe the CBN would more actively mop up funds
through its intermittent OMO auctions.
Investors are therefore advised to take advantage of opportunities in mid-term bills that advanced last week as well as the OMO issuances.
FGN Bonds Market Update: Average Yield Rose 47bps higher W-o-W
Last week, the performance in the FGN Bonds secondary market was triggered by continued sell-offs by offshore players intensified by the Turkey currency crises. In addition, ahead of the Bond auction on Wednesday, local investors sold off bonds in anticipation of higher marginal rates. As expected, stop rates across the 3 instruments (Apr-23, Mar-25 & Feb-28) closed higher at (14.39% vs. 13.69%, 14.60% vs. 14.00% & 14.69%vs. 14.30%) in that order. However, the bids were unfilled due to higher quotes from investors resulting to 0.4x subscription (N39.7bn allotted vs N90.0bn offered).
Consequently, average yield on benchmark bonds improved 47bps W-o-W to close at 14.5% thus sustaining the bearish trend.
Please see indicative bond rates for today below:
Bond |
Tenor
(Years) |
Yield
(%) |
Coupon
(%) |
Implied
Price (N) |
Feb-20 |
2 |
13.55 |
15.54 |
102.58 |
Jul-21 |
3 |
14.40 |
14.50 |
100.19 |
Jan-22 |
4 |
14.10 |
16.39 |
106.04 |
Mar-24 |
6 |
14.30 |
14.20 |
99.60 |
Jan-26 |
8 |
14.80 |
12.50 |
89.82 |
Mar-27 |
9 |
14.90 |
16.29 |
106.57 |
Jul-34 |
16 |
14.75 |
12.15 |
84.17 |
Mar-36 |
18 |
14.90 |
12.40 |
84.53 |
Apr-37 |
19 |
14.80 |
16.25 |
109.05 |
On the back of the weak level of demand for FGN
bonds and anticipated sell-offs on emerging market instruments, we believe the
bearish trend may be sustained for yet another week. Notwithstanding, we advise
investors to take advantage of instruments with attractive yields especially
those trading at significant discount to par which present opportunity for
capital gain in the short to medium term.
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