Bullish Sentiment Sustained as Average Yield Shed 25bps WoW to Close at 4.85%

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Monday, November 29, 2021 / 02:27 PM / by Afrinvest Research / Header Image Credit: iStock

 

Last week, the Nigerian Treasury Bills ("NT-Bills") secondary market started off on a quiet note as market participants prepared for the Primary Market Auction ("PMA") which was held on Wednesday (24-Nov-21). However, unmet bids from the PMA gushed into the NT-Bills secondary market as investors repositioned their funds. Consequently, the average yield in the market dropped 25bps W-o-W to close at 4.85% (from 5.11% the previous week).


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In more detail, the mid-dated maturities saw the most buying interest as the average yield fell 50bps W-o-W to close at 4.30%. The short-end of the curve also saw improved demand as average yield decreased by 44bps W-o-W to close at 3.52% while the long-end of the curve closed marginally tighter as average yield lost 1bp W-o-W. Particularly, the 26-May-22 (-194bps), 24-Feb-22 (-175bps), and 12-May-22 (-105bps) declined the most respectively for the same period.

 

At the PMA, the Central Bank of Nigeria ("CBN") offered a total of N118.7bn across the 91- (N3.5bn), 182- (N4.1bn), and 364-Day (N111.1bn) bills which were met with strong demands with an overall subscription ratio of 3.5x. The longer tenor sustained its high-interest level from investors causing the yield on the offer to drop further by 61bps to close at 5.89%.

 

Please see the details of the PMA result below:

Auction Date

24-Nov-21

24-Nov-21

24-Nov-21

Allotment Date

25-Nov-21

25-Nov-21

25-Nov-21

Maturity Date

24-Feb-21

26-May-22

24-Nov-22

Tenor

91-Day

182-Day

364-Day

Offer (N)

3,537,952,000

4,118,561,000

111,071,723,000

Subscription (N)

9,044,421,000

4,283,474,000

402,945,160,000

Allotment (N)

2,044,421,000

3,783,474,000

209,897,300,000

Range of Bids (%)

2.4500 - 6.3900

3.4700 - 5.5000

5.4400 - 7.6800

Previous stop rates

2.50

3.50

6.50

Current Stop Rates (%)

2.50

3.50

5.89

Bid-to-Cover Ratio

4.4x

1.1x

1.9x

Allotment Ratio

0.6x

0.9x

1.9x

Subscription Ratio

2.6x

1.0x

3.6x

 

Going into the week, we expect improved activity in the NT-Bills secondary market on the back of enhanced system liquidity (which stood at N164.9bn long as of Friday) Also, OMO maturity worth N54.30bn is scheduled to hit the financial system (on 30-Nov-21) to further improve liquidity levels. We therefore advise investors to position in attractive instruments along the curve, particularly those that have advanced in the previous week.

 

Please see NT-Bills indicative rates below:

Maturity

Tenor (Days)

Rate (%) p.a.

Yield (%) p.a.

10-Feb-22

73

                  2.65

             2.66

31-Mar-22

122

                  4.15

             4.21

26-May-22

178

                  4.93

             5.05

14-Jul-22

227

                  5.95

             6.18

25-Aug-22

269

                  6.70

             7.05

9-Sep-22

284

                  7.04

             7.45

Rates are valid till 01:45 pm today [29-Nov-21]

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

 

FGN Bonds Update: Average Yield inch 5bps higher W-o-W to 11.41% as Bearish Run Persist

The FGN Bonds secondary market sustained its bearish sentiment on the back of sell-offs that were recorded mostly on the medium- and long-term instruments. Consequently, average yields in the market gained 5bps W-o-W to close at 11.41% (from 11.37% the previous week)

 

Specifically, the average yield on the middle and long-end of the curve rose 18bps and 4bps W-o-W to close at 12.10% and 12.85% respectively while the short-end of the curve witnessed the buying interests from investors with a 12bps contraction in its average yield to close at 8.45%.

 

Please see below FGN Bonds secondary market rates

Bond

Tenor (Years)

Yield (%)

Coupon (%)

Implied Price (N)

Apr-23

2

             7.20

             12.75

                   107.30

Mar-24

3

             8.00

             14.20

                   112.72

Mar-25

4

             9.20

             13.53

                   112.10

Jan-26

5

           10.85

             12.50

                   105.36

Mar-27

6

           11.15

             16.29

                   120.10

Feb-28

7

           11.55

             13.98

                   110.54

Jul-34

13

           11.00

             12.15

                   107.72

Mar-36

15

           12.25

             12.40

                   100.96

Apr-37

16

           12.25

             16.25

                   127.37

Apr-49

28

           12.10

             14.80

                   121.39

Rates are valid till 01:45 pm today [29-Nov-21]
*Please note that the minimum subscription for FGN Bonds is N20,000,000.00

 

This week, we expect improved activity in the FGN Bonds secondary market as investors continue to position their portfolios in reaction to the result of the MPC meeting held on the 22nd and 23rd of November, where the committee maintained the status quo on policy parameters. In addition, a total of N5.63bn worth of coupon payments is set to hit the system in the coming week. We, therefore, advise investors to trade cautiously and position in attractive yields particularly on the short-tenured instruments.


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