FGN Bond Auction Results Show Weak Appetite For Bonds As DMO Fails To Raise Target Cash Amount

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Thursday, May 20, 2021 / 9:22 AM / By Zedcrest Capital / Header Image Credit: wblr


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FGN Bonds

The FGN bonds market held its breath in today's session as traders anticipated the FGN Bond primary market auction results. Yields across the benchmark curve remained mostly unchanged from the previous day, with improved offers at the long-end of the curve, as sentiments for a bearish auction result amplified throughout the trading session. Investors took some bets on the outcome of the auction, with the 2045s and 2050s changing hands at 14.00% for most of the session, while the 2049s was offered at 14.10% but with little demand there. Consequently, yields expanded by an average of c.3bps across the benchmark curve.

 

At the bond auction, the DMO raised a total of c.N175.24bn (130% of the total offered amount) across the three tenors offered with a total bid-to-cover ratio of 1.88X. Demand for higher rates from investors saw the DMO shifting most of its sale to the long-end (2049s paper), raising a total of N181Bn cash value (25% short of its monthly target of N240Bn cash for the quarter). The DMO raised stop rates by c.62bps on the average, as rates closed at 13.10%, 14.00% and 14.20% for the 7-, 15-, and 30-year papers respectively.

 

Following the bearish sentiment from the auction results, we expect bids in the market to pull up to match the auction levels. With a hypothetical floor at 14.00% for the long-end of the curve, and most of the outstanding demand met at the auction, we expect the market to remain in negative territory even as investors continue to sit on the sidelines and short-term liquidity needs pressure banks' positions.

 

FGN Bonds Auction Result - May 19, 2021

Maturity

Rate (%)

Offer (N'bn)

Sub (N'bn)

Sale (N'bn) 

Previous Rate (%)

Changes

Mar-27s

13.10

50.00

37.24

20.14

12.25

0.8500

Mar-35s

14.00

50.00

57.35

41.15

13.34

0.6600

Apr-49s

14.20

50.00

187.38

133.95

13.85

0.3500

 

Benchmark FGN Bonds

 

Description

Bid (%)

Offer (%)

Day Change (%)

12.75 27-Apr-23

11.10

10.25

0.00

14.20 14-Mar-24

11.70

11.50

0.00

13.53 23-Mar-25

12.30

11.50

0.00

12.50 22-Jan-26

13.20

12.75

0.00

16.29 17-Mar-27

13.20

12.80

0.00

13.98 23-Feb-28

13.25

12.80

0.00

14.55 26-Apr-29

13.25

12.85

0.00

12.15 18-Jul-34

14.15

13.85

0.00

12.50 27-Mar-35

14.15

13.85

0.00

12.40 18-Mar-36

14.15

13.85

0.00

16.2499 18-Apr-37

14.20

13.85

0.00

9.80 24-Jul-45

14.25

14.00

0.00

14.80 26-Apr-49

14.25

14.00

0.00

12.98 27-Mar-50

14.25

14.00

0.00

 

Treasury Bills

On the other hand, we saw improved activity in the T-bills space as demand for longer-dated NTBs sustained from the previous day's session. The April 2022 papers changed hands at mid-8% levels while Feb. 2022 OMO papers traded around 9.30% levels.


We expect trading to continue in similar patterns as investor demand remains focused on NTBs and short-term liquidity funding remains negative for OMOs. We expect the CBN to float an OMO auction tomorrow, keeping in line with the recent trend, despite tight system liquidity levels.

 

Benchmark OMO Bills

Description

Bid (%)

Offer (%)

Day Change (%)

NGOMOB 0 05/11/21

14.00

1.00

0.00

NGOMOB 0 06/08/21

14.00

1.00

0.00

NGOMOB 0 08/10/21

14.00

1.00

0.00

NGOMOB 0 09/07/21

14.00

1.50

0.00

NGOMOB 0 10/19/21

14.00

1.75

0.00

NGOMOB 0 11/02/21

14.00

1.75

0.00

NGOMOB 0 12/07/21

14.00

2.00

0.00

NGOMOB 0 01/11/22

14.00

2.50

0.00

NGOMOB 0 02/01/22

14.00

2.50

0.00

NGOMOB 0 03/01/22

14.00

1.00

0.00

 


Benchmark NT-Bills

Description

Bid (%)

Offer (%)

Day Change (%)

NIGTB 0 05/13/21

14.00

1.00

0.00

NIGTB 0 06/10/21

14.00

1.00

0.00

NIGTB 0 07/01/21

14.00

1.00

0.00

NIGTB 0 08/26/21

14.00

1.00

0.00

NIGTB 0 09/09/21

14.00

1.50

0.00

NIGTB 0 10/14/21

14.00

1.75

0.00

NIGTB 0 11/11/21

14.00

2.00

0.00

NIGTB 0 01/13/22

14.00

2.50

0.00

NIGTB 0 02/10/22

14.00

3.00

0.00

NIGTB 0 03/01/22

14.00

3.00

0.00

 


Money Markets

System liquidity opened the trading session firmly in negative territory, despite OMO maturities of N55Bn credited the previous day.  Local banks remained at the CBN lending window, with a clear preference for overnight funding with the SLF volumes growing by 161% D/D. Open Buy Back (OBB) and Overnight (O/N) rates went higher by 175bps on the average to close at 14.50% and 15.00% respectively at the end of the trade session.

 

We expect the market to remain tight in the double-digit range as the week moves on, with no other inflows expected to ease tight liquidity levels.


Money Market Rates

 

Current (%)

Previous (%)

Open Buy Back (OBB)

14.50

12.75

Overnight (O/N)

15.00

13.25

 


FX Market

At the IEFX space, we saw an uptick in supply of the greenback, as traded volumes increased by 123.00% D/D (c.$131mio traded). The Naira appreciated by N0.21k in that space as most banks remained bid between N360.00 and N426.00 to the dollar.

 

The Naira remained relatively stable at the parallel market, with the transfer rates swinging around the N500/$ mark in trading as demand remains persistent. The cash rate appreciated by 0.10% D/D (c.N0.50k loss) to close at N480.50/$.


FX Market

Current (N/$)

Previous (N/$)

CBN Spot

379.00

379.00

CBN SMIS

380.69

380.69

I&E FX Window

410.75

411.63

Cash Market

480.50

480.00

Transfer Market

498.00

498.00

 


Eurobonds

The market continued to react negatively to news of the Nigerian government making moves to tap the Eurobond market this year, following President Muhammadu Buhari's request for approval for a $6.2Bn external financing of the 2021 budget deficit from lawmakers. The NIGERIA Sovereign tickers weakened for a second consecutive session, as yields expanded further by c.3bps D/D on the average across the sovereign curve.

 

The NIGERIA Corporates papers, on the other hand, continued to rally as demand from local and offshore players persisted for another consecutive session on most tracked papers. The ZENITH 2022s and UBANL 2022s led the gainer's charts as yields on both papers dropped by 13bps and 12bps respectively.


Proshare Nigeria Pvt. Ltd.




Proshare Nigeria Pvt. Ltd.




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