Bullish Run Extends to Fourth Consecutive Week as Average Yield on T-Bills Drops to 12.4%

Monday, October 21, 2019 / 02:54 PM / By Afrinvest Research / Header Image Credit: bizwatchnigeria

The bullish streak in the Treasury Bills ("T-Bills") secondary market continued last week for a fourth consecutive week amidst the CBN intervention at the Primary Market Auction("PMA") on Wednesday as well as its Open Market Operation ("OMO") on Thursday. The upbeat in demand was largely sustained by the buoyant system liquidity levels that was recorded on 4 out the 5 trading sessions (c.N676.4bn on Thursday before closing the week at negative N220.9bn).

Consequently, yields remained pressured as average yield across tenors dipped further by 14bps W-o-W to settle at 12.4% on Friday. Major buying interests were witnessed at the medium and long dated tenors, particularly, 27-Feb-20 (-84bps), 10-Sep-20 (-83bps) and 12-Mar-20 (-83bps) maturities.

At the PMA on Wednesday, the CBN offered N121.9bn worth of T-Bills as against the N634.1bn total subscription, translating to a bid to cover ratio of 5.2x (vs. the 2.5x recorded at the previous auction). All tenors were oversubscribed with the 182-day instrument enjoying the most buying interest relative to available offer at 10.9x bid to cover ratio. Consequently, the stop rates across all tenors declined by 0.3%, 0.6% and 0.3% respectively as the CBN fully allotted to the total amount offered.

Please see a detailed summary in the table below:

In addition, the CBN conducted an OMO auction on Thursday, offering a total of N380bn across the 91day, 182day and 364day instruments. Like the previous OMO auctions, the 91 days and 182 days bills were grossly undersubscribed at 0.5x and 0.7x respectively while the 364day bill was 3.0x oversubscribed (N  350.0bn offer vs. N1.1tn subscription). As a result, the Apex bank prorated all successful bids by 34.0%, allotting a total of N 420.6bn to investors.

Going into this week, we expect OMO maturities worth N338.5bn, as well as unfilled bids from last week, to bolster system liquidity and usher demand from investors in the secondary market. Following the OMO auction this morning, where the CBN offered N100.0bn, we still expect the Apex bank to maintain its pace of excess liquidity mop-ups to keep system liquidity in check.

In addition, the CBN recently issued a directive that precludes bank customers with loans (including those enjoying CBN intervention loans) from purchasing T-Bills or OMO instruments. Investors are therefore advised to trade cautiously and position in T-Bills and OMO offers with attractive yields as the impact of this policy may sway demand in the short term.

Please see indicative secondary market T-Bills rates below:

Rates are valid till 01:45pm today (21-Oct-2019)

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

FGN Bonds Market Update: Bullish Run Reversed as Average Yield Gains 2bps W-o-W 

Contrary to activities in the T-Bills space, the bullish sentiment in the Bond market ceased last week as investors sold off their positions to take advantage of anticipated attractive rates at the OMO auctions. As a result, average yield on all instruments gained 2bps W-o-W to settle at 13.75% from 13.72% the previous week. Major sell-offs were recorded on the 10-Oct-20 (+39bps), 14-Oct-20 (+36bps) and 12-Dec-20 (+36bps) maturities.

Also, the Debt Management Office ("DMO") listed a 15.0bn Green bond (the second green bond to be issued) on the Nigerian stock exchange during the week. The 7-yr bond which had a coupon rate on 14.50% is targeted towards financing environmentally friendly projects.

Going into the week, the DMO is expected to offer N150.0bn at the FGN Bond auction- comprising N50.0bn worth of the APR-2023 (5-Yr reopening), APR-2029 (10-Yr reopening), and N50.0bn of the APR 2049 (30-Yr reopening) -to investors..

Please see details of this week's auction below:

We expect the market to open on a quiet note as investors anticipate the outcome of the bond auction on Wednesday. Investors are advised to take advantage of bonds with attractive yields and trading at a discount as well as primary offers in the FGN Bond spaces.

Please see indicative bond rates for today below:

Rates are valid till 01:45pm today (21-Oct-2019)

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

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