Saturday, December 01, 2018 03:29 PM / Afrinvest Research

 

In the Treasury bills (“T-Bills”) market this week, performance turned bearish as selloff across tenors was sparked by higher rates at the Open Market Operation (“OMO”) conducted by the Apex bank during the week. 

Consequently, average rates across tenors advanced 42bps to settle at 13.7% W-o-W. Short term bills received the strongest sell-offs, notably 20-Dec-18 (+2.2%) and 27-Dec-18 (+1.9%) advanced the most. Thus, average rate rose 0.7% to close at 13.1% as investors sold off their positions to invest in attractive long-term bills during the OMO auctions.  In the same vein, long and medium-term bills also inched higher by 0.4% and 0.1% W-o-W to settle 14.6% and 13.0% respectively. 

Last week, the Central Bank of Nigeria (“CBN”) conducted three OMO auctions for the first time in over 7 months as elevated liquidity at the start of the week coupled with OMO maturities and FAAC inflows into the system pressured the Apex bank to mop up liquidity. The first auction was conducted on Monday offering a total of N180.0bn across the 115-day (N30.0bn), 192-day (N50.0bn) and 360-day (N100.0bn) tenors. The offer received strong investors interest as investors offered to subscribe for N165.6bn (translating to a bid-cover ratio of 0.9x) with the CBN however selling N161.1bn. 

At the second auction on Thursday, the Apex bank offered N600.0bn across 3 tenors while investors bid N403.1bn (bid-cover ratio of 0.6x) with the CBN selling a total of N371.6bn. Notably, investor interest waned at the auction following rumours of possible higher rates at subsequent auctions while spot rates across all tenors inched higher. The final auction held on Friday with the CBN offering N100.0bn across 3 tenors. The offer received strong interest from investors as they offered to subscribe for N119.8bn (translating to a bid-cover ratio of 1.2x). The CBN allotted to all investors their full bids albeit higher stop rates. 

During the week, the CBN also conducted a Primary Market Auction (“PMA”) to rollover maturing bills worth N150.6bn. The auction received strong investor interest as investors bid a total of N272.0bn resulting into a bid-cover ratio of 1.8x while the CBN sold its intended N150.6bn. The table below presents further breakdown of the auction result:

 

Auction Date	28-Nov-2018	28-Nov-2018	28-Nov-2018
Allotment / Issue Date	29-Nov-2018	29-Nov-2018	29-Nov-2018
Tenor	(91-Day)	(182-Day)	(364-Day)
Offer Amount (N)	22,727,507,000	24,802,939,000	103,071,723,000
Total Subscription (N)	24,519,086,000	45,326,600,000	202,195,181,000
Allotment (N)	24,372,790,000	23,157,656,000	103,071,723,000
Range of Bid Rates (%):	10.8000 – 11.0000	12.5000 – 14.0000	13.5000 – 16.4250
Stop Rates (%):	10.90	13.10	14.45
Bid-Cover Ratio	1.1x	1.8x	2.0x
Allotment Ratio	1.1x	0.9x	1.0x

    

Going into the week, OMO maturity of N684.8bn is expected into the system on Thursday while system liquidity stands at N211.6bn short. The Debt Management Office (“DMO”) announced that it would not be conducting any PMA for the rest of the year as the remaining maturing bills worth N78.1bn will be fully redeemed while N84.5bn worth of maturing January bills will be partly redeemed. Thus, we expect the CBN to increase its OMO auction interventions for the rest of the year as increased FX demand would also stem concerns for the Apex bank.

 

Please see below rates for today:

Maturity	Tenor (Days)	Rate (%) p.a.	Yield (%) p.a.
17-Jan-19	45	11.60	11.77
14-Feb-19	73	10.65	10.88
28-Feb-19	87	11.45	11.77
14-Mar-19	101	11.60	11.98
02-May-19	150	11.46	12.03
19-Sep-19	290	13.64	15.30
17-Oct-19	318	13.86	15.76
OMO Auction	c.200	12.50	13.67
OMO Auction	c.350	14.20	16.44

 

FGN Bonds Market Update: Market Reverse Bullish Performance as Average Yield Rise 17bps

At the start of the week, we saw a rally as investors continued to position on the long end of the curve. However, by Thursday, offshore investors resumed their sell-offs on Nigerian instruments erasing gains recorded in previous days. Consequently, average yield across all tenors rose 0.2% to settle at 15.2% W-o-W. 

Performance was mixed as short and long tenored instruments recorded sell-offs with yields climbing higher by 22bps and 9bps respectively while mid-tenored instruments saw yields decline 15bps. 

This week, we expect the bearish run to be sustained as offshore investors continue to reduce exposure to Nigerian sovereign instruments despite signs of slowdown in policy normalisation by the United States Federal Reserve on account of the political risk premium placed on the Nigerian market evidenced in recent bond auctions. 

Please see below indicative FGN Bond rates for today:

Bond	Tenor (Years)	Yield (%)	Coupon (%)	Implied Price (N)
Feb-20	2	14.50	15.54	101.04
Jul-21	3	15.25	14.50	98.38
Jan-22	4	14.40	16.39	104.84
Mar-24	6	15.00	14.20	97.09
Jan-26	8	15.60	12.50	86.89
Mar-27	9	15.70	16.29	102.61
Feb-28	10	15.85	13.98	92.03
Jul-34	16	15.57	12.15	80.10
Mar-36	18	15.65	12.40	80.71
Apr-37	19	15.60	16.25	103.85

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