Bullish Run Extends to Fourth Consecutive Week as Average Yield on T-Bills Dips to 11.9%

Proshare

Monday, July 08, 2019  / 11:09AM / By Afrinvest Research 

 

The performance in the T-Bills secondary market last week was bullish for the fourth consecutive week following a sustained robust system liquidity (N721.9bn long as at Thursday). This was further fueled by inflow of FAAC allocation (c. N320bn) as well as unfilled bids from the Primary Market and OMO auctions conducted during the week.  As a result, average yield across all tenors declined 18bps W-o-W to close at 11.9% on Friday. The short- and medium-term bills particularly the 18-Jul-19 (-56bps), 25-Jul-19 (-110bps) and 07-Nov-19 (-57bps) instruments enjoyed the most buying interests.

For the first time in a while, the CBN announced three OMO auctions during the week, offering a total of N800.0bn. On Monday, N400.0bn was offered across the short (N50.0bn offer vs. N4.1bn subscription), medium (N150.0bn offer vs. N43.1bn subscription) and long-term (N200.0bn offer vs. N352.8bn subscription) maturities. While Tuesday’s auction resulted in a no-sale by the Apex bank, Thursday’s offer of N300.0bn was met with a strong demand as investor’s subscription totaled N886.7bn showing a bid-to-cover ratio of 3.0x. More investors positioned at the long end of the curve (N780.0bn subscription vs. N200.0bn offer) mirroring Monday’s auction.

At the Primary Market Auction last Wednesday, the CBN rolled over a total of N88.9bn which matured across the 91 (N10.0bn), 182 (N20.0bn) and 364 (N58.9bn)-day instruments. As expected, all three tenors were oversubscribed (with the 364-day bill taking the lead), resulting to a decline in stop rates on all instruments.

 

Please see a detailed summary in the table below:

Auction Date

03-Jul-19

03-Jul-19

03-Jul-19

Allotment / Issue Date

04-Jul-19

04-Jul-19

04-Jul-19

Tenor

(91-Day)

(182-Day)

(364-Day)

Offer Amount (N)

10,000,000,000

20,000,000,000

58,857,012,000

Total Subscription (N)

10,228,000,000

64,177,770,000

315,766,800,000

Allotment (N)

10,000,000,000

20,000,000,000

58,857,012,000

Range of Bid Rates (%):

9.30 – 14.00

11.40 – 15.00

11.50 – 15.00

Stop Rates (%):

10.50

11.70

11.91

Previous Stop Rates (%):

9.60

11.89

12.02

Allotment Ratio:

1.0x

0.3x

0.2x

Bid-to-cover ratio

1.0x

3.2x

5.4x

 

In addition to the current system liquidity (N840.0bn long as at Friday), an inflow from OMO maturities worth N105.2bn is expected to bolster system liquidity this week. We expect to see a sustenance in the bullish run stemming from a strong system liquidity as well as sustained OMO auction by the CBN.. Investors are advised to take advantage of the long term OMO auctions and the relatively more attractive yields at the longer end of the curve, such as the May-2020 (+10bps) and June-2020 (+22bps) bills.

 

Please see indicative secondary market T-Bills rates below:

Maturity

Tenor (Days)

Rate (%) p.a.

Yield (%) p.a.

5-Sep-19

59

9.50

9.65

3-Oct-19

87

9.00

9.20

21-Nov-19

136

10.51

10.94

5-Dec-19

150

10.70

11.19

26-Dec-19

171

10.80

11.38

23-Apr-20

290

11.14

12.22

OMO Auction

c.100

10.20

10.73

OMO Auction

c.200

11.10

12.01

OMO Auction

c.350

11.80

13.31

 

 

FGN Bonds Market Update: Bullish Run Sustained as Average Yield Declines by 20bps

In line with our expectation, the bonds market sustained its bullish run following sustained buying interests by investors. Consequently, average yield declined by 20bps W-o-W from 13.2% the prior week to close at 13.0% on Friday. More investors positioned at the short end of the curve, particularly the Jul-19 (-113bps), Aug-19(-110bps) and Sept-19 (-110bps) , on the flip side, yields on the 2020s advanced  1.0% W-o-W.

This week, we expect to see a sustenance of the bullish trend as a result of the buoyant system liquidity coupled with attractive instruments across the curve. Therefore, we advise investors to cherry pick instruments with attractive yields across the curve.

 

Please see indicative FGN bond rates below:

Bond

Tenor (Years)

Yield (%)

Coupon (%)

Implied Price (N)

Jul-21

2

           13.20

            14.50

                  102.23

Jan-22

3

           13.00

            16.39

                  107.15

Apr-23

4

           13.90

            12.75

                    96.64

Mar-24

5

           13.70

            14.20

                  101.63

Mar-25

6

           13.75

            13.53

                    99.09

Jan-26

7

           14.00

            12.50

                    93.69

Mar-27

8

           14.05

            16.29

                  110.26

Feb-28

9

           14.13

            13.98

                    99.22

Jul-34

15

           14.25

            12.15

                    87.11

Mar-36

17

           14.20

            12.40

                    88.56

Apr-37

18

           14.20

            16.25

                  113.11

Apr-49

30

           14.35

            14.80

                  103.02

 


Proshare Nigeria Pvt. Ltd.


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