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Bullish Run Halts as Average Yield Advanced 54bps WoW on Tight System Liquidity

Bonds & Fixed Income	1111 VIEWS
Bonds & Fixed Income
1111 VIEWS

Monday, July 29, 2019 / 01:52PM / By Afrinvest Research

The bullish performance in the Treasury Bills (“T-Bills”) secondary market came to a halt last week, after 5 consecutive weeks of buying interests, as average yield across all tenors advanced 54bps W-o-W to settle at 11.1%. The upbeat in yields stemmed from the dampened system liquidity which led to sell offs by investors across the yield curve. Notably, major sell interests were witnessed at the short and medium end of the curve, particularly the 5-Sept-19 (+171bps), 21-Nov-19(+161bps) and 24-Oct-19 (+156bps).

Also, in line with our expectations, the Monetary Policy Committee left all policy parameters unchanged at its 268^th meeting while reiterating its drive to maintain price stability and support credit expansion in the economy.

Going into the week, the CBN is expected to rollover N221.2bn worth of maturing T-Bills at the Primary Market Auction this Wednesday, following the release of its Q3:2019 T-Bills auction calendar. Furthermore, inflows from maturing OMO bills (N88.7bn) as well as June FAAC (Federation Accounts Allocation Committee) payments are expected to hit the system thereby bolstering system liquidity.

Please see details of this week Primary Market Auction below:

Tenor	91-Day	182-Day	364-Day
Offer Amount (N)	28,018,956,000	56,684,524,000	136,522,566,000
Last Stop Rate (%)	9.7400	10.7500	11.1390
Expected Stop Rate Range (%)	9.65% - 9.75%	10.65%-10.80%	11.00%-11.20%

Nevertheless, the CBN may resume “Special” or “Normal” OMO auctions in view of the expected maturity this week. Investors are therefore advised to take advantage of OMO auctions at attractive yields, relative to the secondary market rates, as the CBN may sustain its new policy that precludes banks from participating in its “Special” OMO auction.

Please see indicative secondary market T-Bills rates below:

Maturity	Tenor (Days)	Rate (%) p.a.	Yield (%) p.a.
10-Oct-19	73	8.75	8.91
26-Dec-19	150	9.81	10.22
16-Jan-20	171	10.20	10.71
27-Feb-20	213	10.40	11.07
16-Apr-20	262	10.35	11.18
OMO Auction	c.100	10.00	10.22
OMO Auction	c.200	11.20	11.82
OMO Auction	c.350	11.50	12.93

FGN Bonds Update: Average Yield Advance 12bps W-o-W Following Sell-offs Across Tenors

In the bonds market last week, performance was relatively bearish as investors sold off their positions ahead of the primary market Bond Auction that held on Wednesday. Consequently, average yields across all tenors advanced 12bps W-o-W to settle at 12.7%. Major selloffs were recorded on the shorter end of the yield curve, particularly the 23-Jan-19 (+118bps), 13-Dec-19 (+82bps) and 15-Jul-21 (+25bps) maturities.

At the bond auction, the Debt Management Office (“DMO”) offered N145.0bn across the APR-2023 (reopening), APR-2029 (reopening), and APR 2049 (reopening) bonds. The result showed a total subscription of N301.0bn, translating to a 2.1x bid-to-cover ratio (vs. 1.7x at the previous auction which held on 27-Jun-19). All tenors were oversubscribed highlighting the sustained trend in investors preference for longer term bonds with the 10year (reopening) enjoying the most interest.

Consequently, the DMO reviewed the stop rates downwards by allotting to fewer competitive bids (N86.8bn) and non- competitive bids (N58.2bn).

Please see below a summary of the Bond auction result

Auction Date	24-Jul-19	24-Jul-19	24-Jul-19
Allotment / Issue Date	26-Jul-19	26-Jul-19	26-Jul-19
Term to maturity	3 Years, 9 Months	9 Years, 9 Months	29 Years, 9 Months
Offer Amount (N)	40,000,000,000.00	50,000,000,000.00	55,000,000,000.00
Total Subscription (N)	52,600,000,000.00	124,050,000,000.00	124,370,000,000.00
Allotment (N)	28,190,000,000.00	7,230,000,000.00	51,400,000,000.00
Range of Bid Rates (%)	12.7000 – 14.7000	12.9000 – 14.9500	13.7500 – 15.7800
Stop rates (%)	13.3500	13.6400	14.1200
Previous stop rates (%)	14.3000	14.5000	14.6800
Bid-to-Cover Ratio	1.3x	2.5x	2.3x
Allotment Ratio	0.5	0.1	0.4

In addition, the DMO listed a N100 billion worth of Sukuk bond (FGN 2025 bond) on the Nigerian Stock Exchange. The Sukuk bond, which is the second to be listed, was issued at a rental rate of 15.743% - a 73bps decline from its debut issuance in April which printed at 16.47%.

Furthermore, we expect the bond market to open on a positive note as investors take advantage of attractive yields in the secondary market following the volume of lost bids at the primary auction.

Please see indicative FGN bond rates below:

Bond	Tenor (Years)	Yield (%)	Coupon (%)	Implied Price
Jul-21	2	12.40	14.50	103.54
Jan-22	3	12.20	16.39	108.78
Apr-23	4	12.90	12.75	99.52
Mar-24	5	12.70	14.20	105.09
Mar-25	6	12.80	13.53	102.83
Jan-26	7	13.50	12.50	95.76
Mar-27	8	13.60	16.29	112.47
Feb-28	9	13.60	13.98	101.86
Jul-34	15	13.95	12.15	88.79
Mar-36	17	13.92	12.40	90.20
Apr-37	18	13.73	16.25	116.54
Apr-49	30	14.00	14.80	105.55