DMO Steadies Rate Expectation at Monthly FGN Bond Auction By Cutting Volumes Sold To Drop Stop Rates

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Thursday, August 20, 2020 / 5:59 AM / By Zedcrest Capital / Header Image Credit: Business Day


Proshare Nigeria Pvt. Ltd.


FGN Bonds

The FGN bonds market held its breath in today's session as focus shifted to the FGN Bond primary market floated by the DMO. Bid yields remained largely unchanged across the benchmark curve, with improved offers at the mid-to long-end of the curve as sentiments for a largely bullish auction waned as the session went by. Improved bids in the 2024s and 2025s dragged yields down by an average of c.3bps across the benchmark curve.

At the bond auction, the DMO sold a total of c.N116.65bn (77.76% of the total offered amount) across the four tenors offered, cutting stop rates on all but the 5-year paper (2026s) which closed higher by 70 basis points. Stop rates on the 2035s, 2045s, and 2050s were cut by  15bps, 5bps, and 5bps respectively, as the DMO shied away from selling full volumes to lower its budget funding costs despite total bid=to=cover ratios of 2.08X.

Reactions to the auction result are mixed at the moment, so we expect a touchy open tomorrow as the market gauges where to settle. In the mid-term, we maintain a bullish stance as the DMO has probably considered the abundance of inflows to locals from OMO maturities and bond coupon payments expected Q2 leading into Q3.

 

FGN Bond Auction Results - Aug. 19, 2020

Tenor

Last Stop Rate (%)

Offer (N'bn)

Sub. (N'bn)

Sale (N'bn)

Apr-23

6.70

25.00

32.68

25.42

Apr-35

9.35

40.00

48.82

21.45

Apr-45

9.75

45.00

46.44

16.09

Apr-50

9.90

40.00

114.29

53.69

 

Benchmark FGN Bonds

 

Description

Bid (%)

Offer (%)

Day Change (%)

 

16.39 27-Jan-22

5.85

3.95

0.00

 

12.75 27-Apr-23

6.00

4.75

0.00

 

14.20 14-Mar-24

6.45

4.50

(0.30)

 

13.53 23-Mar-25

6.85

5.10

(0.15)

 

12.50 22-Jan-26

6.65

6.25

0.00

 

16.29 17-Mar-27

8.05

7.75

0.00

 

13.98 23-Feb-28

8.20

7.75

0.15

 

14.55 26-Apr-29

8.65

8.20

0.00

 

12.15 18-Jul-34

9.80

9.30

0.00

 

12.40 18-Mar-36

10.10

9.40

0.00

 

16.2499 18-Apr-37

10.15

9.55

0.00

 

14.80 26-Apr-49

10.10

9.86

0.00

 


Treasury Bills

Activities in the OMO bills space picked up as we local banks resumed purchasing mid- to long-dated papers in anticipation of OMO maturities of c.N181Bn expected tomorrow. The January to March bills saw the most love, trading around mid-3% levels all day. We also saw some offers at the long-end (June and August bills) but not much interest seen below 4.00%.

The NTB bills made no movements today, with offers at the end of the curve (July bill) at 2.90% levels were still met with no demand.

We expect market demand to persist tomorrow especially for shorter-dated bills albeit less aggressive compared to today's trading session.

 

Benchmark OMO Bills

Description

Bid (%)

Offer (%)

Day Change (%)

NGOMO 9/3/2020

4.50

0.01

0.00

NGOMO 10/1/2020

4.50

0.01

0.50

NGOMO 11/03/2020

5.00

0.01

1.00

NGOMO 12/01/2020

5.00

0.01

0.00

NGOMO 02/02/2021

5.50

0.01

0.00

NGOMOB 0 03/02/21

6.00

0.01

0.00

NGOMOB 0 05/11/21

6.00

0.01

0.00

 

Benchmark NTBills

Description

Bid (%)

Offer (%)

Day Change (%)

NIGTB 10/1/2020

2.50

0.01

0.00

NIGTB 11/12/2020

3.00

0.01

0.00

NIGTB 01/14/2021

3.00

0.01

0.00

NIGTB 02/11/2021

3.50

0.01

0.00

NIGTB 04/29/2021

3.50

0.01

0.00

NIGTB 05/13/21

4.00

0.01

0.00

NIGTB 06/10/21

4.00

0.01

0.00

 

Money Markets

The interbank system liquidity improved by c.26.24% to open at c.N91.45Bn in today's session as banks received some refunds from failed Retail FX bids. OBB and OVN rates dropped again by c.240bps to close at 13.00% and 13.35% respectively as funding pressures gradually ease off local banks.

We expect rates to drop even further during tomorrow's session as OMO maturities hit the system. There remains an outside chance of an OMO auction floated by the CBN, but we don't expect this to heavily influence rates as issued volumes remain small and targeted to foreign portfolio investors.

 

Money Market Rates

 

Current (%)

Previous (%)

Open Buy Back (OBB)

13.00

15.25

Overnight (O/N)

13.50

16.00


 

FX Market

The FX market received a huge boost as the I&E FX Market saw intra-day traded volumes traded jumped up by over 1,100% to close at c.$227mio, the highest of such volumes seen in almost 8 weeks. However, the closing rate remained scarcely changed, as FX traders remain tight-lipped on the source of the inflow. We expect to see some respite from pressure on the Naira as the funds flow into the market.

 

FX Market

Current (N/$)

Previous ( N/$)

CBN Spot

381.00

381.00

CBN SMIS

380.69

380.69

I&E FX Window

386.00

385.98

Cash Market

475.00

475.00

Transfer Market

476.00

476.00

 

Eurobonds

The NIGERIA Sovereigns Eurobond curve continued to pull back the previous gains, as sellers for the Nigerian papers filled the street once again to off-load the oil-related papers as global oil prices continue to sway back below $45pb. Yields to expanded by an average of c.16bps across the sovereign curve, with papers at the belly of the curve weakening the most. Most of the sovereign papers in Sub-Saharan Africa (SSA) space opened the day unchanged but we saw improved offers on the ANGOLA and GHANA mid-dated papers by the end of the session.

The NIGERIA Corporates on the other hand picked up steam as buyers improved bids for the Zenith 2022s, UBANL 2022s, and ETINL 2024s pushing yields down on those papers by 68bps, 43bps, and 16bps respectively, fueled by a mix of local and offshore demand.


Proshare Nigeria Pvt. Ltd.


 Proshare Nigeria Pvt. Ltd.



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