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Bullish Streak Extends to Fifth Consecutive Week as Robust System Liquidity Spurs Demand

Bonds & Fixed Income	922 VIEWS
Bonds & Fixed Income
922 VIEWS

Monday, December 16, 2019 /2:12 PM / By Afrinvest Research / Header Image Credit: Invest Advocate

The demand in the Nigerian Treasury bills ("NT-Bills") secondary market last week intensified as the impact of the CBN's policy to restrict domestic investors from the OMO market coupled with robust system liquidity levels continued to bolster market sentiments. Consequently, average NT-Bills yield across all tenors further declined 98 bps W-o-W to settle at 6.3% on Friday. Most buying interests were witnessed at the short and medium end of the curve, particularly the 16-Jan-20 (-229bps), 12-Mar-20(-228bps) and 15-Oct-20 (-216bps) maturities.

At the Primary Market Auction ("PMA") which held on Wednesday, the Central Bank of Nigeria ("CBN") offered N45.0bn worth of NT-Bills as against the N292.6bn total subscription, translating to a bid to cover ratio of 6.5x. All tenors were oversubscribed with the 91-day instrument enjoying the most interest. Consequently, the marginal rates across all tenors declined by 1.5%, 1.1% and 1.5% respectively.

Please see a detailed summary in the table below:

Auction Date	11-Dec-19	11-Dec-19	11-Dec-19
Allotment / Issue Date	12-Dec-19	12-Dec-19	12-Dec-19
Tenor	91-Day	182-Day	364-Day
Offer Amount (N)	5,000,000,000	10,000,000,000	30,000,000,000
Total Subscription (N)	53,855,286,000	46,283,061,000	192,434,283,000
Allotment (N)	1,800,000,000	4,500,000,000	38,700,000,000
Range of Bid Rates (%)	5.0000-7.5000	5.0000-8.5000	6.4000-13.4000
Stop Rates (%)	5.0000	6.1900	6.8800
Previous Stop Rates (%)	6.4950	7.2300	8.3700
Bid-to-Cover Ratio	10.8x	4.6x	6.4x
Allotment Ratio	0.03x	0.1x	0.2x

Furthermore, the CBN sustained its weekly OMO intervention on Thursday offering a total of N289.1bn across the 89-day, 180-day and 362- day tenors. This was met with a total subscription of N359.8bn, showing a 1.2x bid to cover ratio across the long-term bill with the short and medium tenor bills receiving "no sale". Notwithstanding, the stop rate for the long tenor instrument cleared at 13.28%, 2bps lower than the previous auction.

Going into this week, we expect inflows from maturing NT-Bills (N22.0bn), OMO bills (N51.3bn) as well as the unfilled bids from the PMA (c. N247bn) to further bolster liquidity. As a result, 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 take advantage of NT-Bills with attractive yields and other short term FGN Bonds (2-3 TTM) as decline in yields may likely persist this week.

Please see indicative secondary market T-Bills rates below:

Maturity	Tenor (Days)	Rate (%) p.a.	Yield (%) p.a.
30-Jan-20	45	6.00	6.04
2-Apr-20	108	6.10	6.21
13-Aug-20	241	6.50	6.79
24-Sep-20	283	6.70	7.07
29-Oct-20	318	7.00	7.45

Rates are valid till 01:45pm today (16-Dec-2019)

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

FGN Bonds Update: Average Yield Contract 79bps W-o-W on Improved Domestic Demand; Bond Primary Auction Holds This Wednesday

In tandem with the NT-Bills market, activities in the Bond market last week remained bullish owing to improved local demand that stemmed from the declining yield environment in the NT-Bill secondary market.

Thus, average yields contracted 79bps W-o-W to settle at 10.8% from 11.6% the previous week. Major buying interests were recorded on the short and medium end of the yield curve particularly the 13-Feb-19 (-175bps), 15-Jul-21 (-136bps) and 23-Feb-28 (-90bps) maturities.

This week, the Debt Management Office (DMO) is expected to offer N150.0bn at the FGN Bond auction- comprising of N50.0bn of the APR-2023 (reopening), N50.0bn of the APR-2029 (reopening), and N50.0bn of the APR 2049 (reopening) -to investors.

Please see details of this week's auction below:

BOND	12.75% FGN APR 2023 (5- Yr Re-opening)	14.55% FGN APR 2029 (10-Yr Re-opening)	14.80% FGN APR 2049 (30- Yr Re-opening)
Term-To-Maturity	3 Years 4months	9 Years 4months	29 Years 4months
Amount on Offer	N50.0bn	N50.0bn	N50.0bn

In addition, we expect investors to trade cautiously as they anticipate the outcome of the bond auction on Wednesday. Market players are advised to take advantage of bonds with attractive yields as well as primary offers in the FGN Bond spaces.

Please see indicative FGN bond rates below:

Bond	Tenor (Years)	Yield (%)	Coupon (%)	Implied Price
Jul-21	2	8.80	14.50	108.98
Jan-22	3	8.90	16.39	115.14
Apr-23	4	9.50	12.75	110.65
Mar-24	5	10.20	14.20	115.32
Mar-25	6	10.25	13.53	115.25
Jan-26	7	10.70	12.50	110.23
Mar-27	8	10.75	16.29	130.33
Feb-28	9	10.75	13.98	120.29
Jul-34	15	10.82	12.15	113.62
Mar-36	17	10.82	12.40	116.19
Apr-37	18	10.85	16.25	147.05
Apr-49	30	11.95	14.80	128.10