Bullish Sentiments Persist as Robust System Liquidity Further Pressures Yields

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Monday, December 23,  2019  /12:53 AM  / By Afrinvest Research / Header Image Credit: Finder

 

Average yield in the Nigerian Treasury Bills ("NT-Bills") secondary market last week further declined by 49bps W-o-W to settle at 5.8% as system liquidity levels remained elevated (c.N579bn as at Friday). As a result, the upbeat in demand was sustained for a 6th consecutive week amidst the Primary Market Auction ("PMA") that held on Wednesday. The short- and medium-term maturities, particularly the 30-Jan-20 (-203bps), 16-Apr-20 (-168bps) and 30-Apr-20 (-127bps) bills, enjoyed the most buying interests from investors.

 

On Monday, the CBN conducted an Open Market Operation ("OMO") mopping up a total of N229.1bn. Although, the CBN offered a total of N180.0bn across 85 and 351day instruments, investors demand was primarily concentrated on the 351-day instrument which showed a bid to cover ratio of 1.3x. Nonetheless, stop rates remained unchanged at 13.28% from the previous auction.

 

At the PMA, the CBN offered N7.0bn worth of T-Bills as against the N100.0bn total subscription, translating to a bid to cover ratio of 14.3x vs. 6.5x at the previous auction. All tenors were oversubscribed with the 364-day instrument enjoying the most interest. Consequently, the stop rates across the 91, 182 and 364-day tenors cleared at 4.0%,5.0% and 5.495% respectively as the total amount offered was fully allotted.

 

Please see a detailed summary in the table below:

Auction Date

18-Dec-19

18-Dec-19

18-Dec-19

Allotment / Issue Date

19-Dec-19

19-Dec-19

19-Dec-19

Tenor

91-Day

182-Day

364-Day

Offer Amount (N)

2,000,000,000

2,000,000,000

3,000,000,000

Total Subscription (N)

24,716,838,000

18,681,653,000

56,614,975,000

Allotment (N)

2,000,000,000

2,000,000,000

3,000,000,000

Range of Bid Rates (%)

3.0000-6.2700

4.2000-6.0100

5.0000-13.3200

Stop Rates (%)

4.0000

5.0000

5.4950

Previous Stop Rates (%)

5.0000

6.1900

6.8800

Bid-to-Cover Ratio

12.4x

9.3x

18.9x

Allotment Ratio

0.1x

0.1x

0.1x

 

Furthermore, the CBN conducted another OMO auction on Thursday offering N350.0bn, across the 89, 180 and 362day instruments. This was met with a total subscription of about N340.0bn, showing a 0.1x, and 1.11x bid to cover ratio on the medium and long-term bills respectively with the short-dated instrument receiving no subscription. Consequently, stop rates for the medium-term bill cleared at 11.5% while that of the longer-term bill remained unchanged at 13.28%.

 

Going into this week's 3-day trading session due to the Christmas holiday, we expect inflows from maturing OMO bills worth N227.3bn to further bolster liquidity. Hence, we anticipate that the Apex bank will maintain its pace of excess liquidity mop-ups to keep system liquidity in check. Investors are advised to invest in T-Bills with attractive rates as well as short term FGN Bonds (2-3 TTM) depending on their investment horizon.

 

Please see indicative secondary market T-Bills rates below:

Maturity

Tenor (Days)

Rate (%) p.a.

Yield (%) p.a.

30-Jan-20

38

6.00

6.04

2-Apr-20

101

6.10

6.20

14-May-20

143

6.30

6.46

13-Aug-20

234

6.50

6.78

24-Sep-20

276

6.80

7.17

29-Oct-20

311

7.00

7.44

Rates are valid till 01:45pm today (23-Dec-2019)

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

 

FGN Bonds Update: The Bears Return as Average Yield Rises 24bps W-o-W

Last week, the bonds market recorded a halt in the bullish momentum that had been sustained for two weeks as investors booked profit ahead of the anticipated primary market bond auction that held on Wednesday. As a result, average yield increased by 24bps W-o-W to 11.08% with the medium tenor maturities witnessing the most selloffs, particularly the 23-Feb-28 (+71bps), 28-Nov-28 (+65bps) and 26-Apr-29 (+61bps).

 

At the bond auction, the Debt Management Office ("DMO") offered N150.0bn across the APR-2023 (reopening), APR-2029 (reopening), and APR 2049 (reopening) bonds. The result showed a total subscription of N288.4bn, translating to a 1.9x bid-to-cover ratio (vs. 1.7x at the previous auction which held on 20-Nov-19). All tenors were oversubscribed highlighting the sustained trend in investors preference for longer term bonds with the 30year (reopening) enjoying the most interest. Furthermore, the DMO allotted more than the amount offered with stop rates for the 2023, 2029, and 2049 bonds closing at 11.0%, 12.0% and 13.0%. This may be an attempt to reduce system liquidity as well as shift borrowings to long term maturities.

 

Please see below a summary of the Bond auction result

Auction Date

18-Dec-19

18-Dec-19

18-Dec-19

Allotment / Issue Date

20-Dec-19

20-Dec-19

20-Dec-19

Term to maturity

3 Years, 4 Months

9 Years, 4 Months

29 Years, 4 Months

Offer Amount (N)

50,000,000,000.00

50,000,000,000.00

50,000,000,000.00

Total Subscription (N)

70,700,000,000.00

91,910,000,000.00

125,820,000,000.00

Allotment (N)

67,340,000,000.00

78,840,000,000.00

118,220,000,000.00

Range of Bid Rates (%)

9.0000 - 12.7500

10.5000 - 13.2500

9.4000 - 14.0000

Stop rates (%)

11.0000

12.0000

13.0000

Previous stop rates (%)

12.0000

12.9300

13.3900

Bid-to-Cover Ratio

1.4x

1.8x

2.5x

Allotment Ratio

1.0x

0.9x

0.9x

 

We expect the bond market to open on a positive note today as investors with lost bids at the primary market take advantage of attractive yields in the secondary market. Investors are advised to cherry pick instruments with the most attractive yields across the curve.

 

Please see indicative FGN bond rates below:

Bond

Tenor (Years)

Yield (%)

Coupon (%)

Implied Price

Jul-21

2

7.70

14.50

109.80

Jan-22

3

8.20

16.39

115.43

Apr-23

4

9.88

12.75

107.97

Mar-24

5

9.95

14.20

114.33

Mar-25

6

9.90

13.53

114.55

Jan-26

7

10.55

12.50

108.57

Mar-27

8

10.90

16.29

126.44

Feb-28

9

10.80

13.98

116.93

Jul-34

15

11.10

12.15

107.47

Mar-36

17

11.15

12.40

109.24

Apr-37

18

11.19

16.25

138.31

Apr-49

30

12.20

14.80

120.60

Rates are valid till 01:45pm today (23-Dec-2019)

*Please note that the minimum subscription for T-Bills is N20,000,000.00

 

Proshare Nigeria Pvt. Ltd.


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