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Investor Demand Expected to Remain Strong as Average NT-Bills Yield Dips to 4.6% WoW

Bonds & Fixed Income	1051 VIEWS
Bonds & Fixed Income
1051 VIEWS

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Monday, January 06, 2020 /12:18 PM / By Afrinvest Research / Header Image Credit: Brecorder

Last week, the Nigerian Treasury Bills ("NT-Bills") secondary market extended its bullish run, buoyed by improved system liquidity (N1.5trn long as at Friday). Consequently, average NT-Bills yield declined further shedding 102bps to settle at 4.6% W-o-W while average yield at the OMO market settled 13.1% W-o-W. Buying interest was witnessed across all tenors, save for the 30-Jan-20 (+20bps) which experienced sell-off and 16-Jan-20 which remained flat W-o-W.

The CBN rolled over maturing bills worth N74.8bn across 91-Day, 182-Day and 364-Day in last Wednesday's Primary Market Auction (:PMA"), closing at respective stop rates of 3.5%, 4.9% and 5.2%. All tenors were oversubscribed as they recorded a bid-cover ratio of 3.7x, 1.6x and 2.4x respectively.

Please see a detailed summary in the table below:

Auction Date	02-Jan-20	02-Jan-20	02-Jan-20
Allotment / Issue Date	02-Jan-20	02-Jan-20	02-Jan-20
Tenor	91-Day	182-Day	364-Day
Offer Amount (N)	10,000,000,000	20,000,000,000	44,837,720,000
Total Subscription (N)	37,150,766,000	31,631,605,000	105,901,127,000
Allotment (N)	10,000,000,000	20,000,000,000	44,837,720,000
Range of Bid Rates (%)	3.0000-14.0000	3.8400-6.5000	3.9800-13.2000
Stop Rates (%)	3.5000	4.9000	5.2000
Previous Stop Rates (%)	4.0000	5.0000	5.4950
Bid-to-Cover Ratio	3.7x	1.6x	2.4x
Allotment Ratio	0.3x	0.6x	0.4x

In addition, the Apex Bank offered OMO bills worth N300.0bn across 81-, 179- and 361-Day tenors to mop liquidity from the financial system. However, there was "no sale on the short and mid tenor bill while the long-dated bill recorded a subscription of N544.8bn putting oversubscription at 2.2x. Thus, clearing at 13.28% stop rate.

Given the robust system liquidity and an expected N423.2bn worth of OMO maturities hitting the financial system this week, we expect the CBN to sustain its weekly OMO auction to put liquidity in check. We believe the NT-Bills space will sustain its bullish run albeit at a slower pace as investor's source for alternative investments given the low yield environment. We still advise risk-averse investors to cherry pick mid-long term bills that are most attractive.

FGN Bonds Market Update: Bullish Run Sustained as Average Yield Dips by 14 bps WoW

Similarly, the bulls extended their run at the domestic bond market. Thus, average yield dipped 14 bps as local investors continue to bargain-hunt for attractive yields in the market. The market has continued to enjoy buying interest, especially in the attractive short dated bond instruments, given the relatively low yield environment in the NT-Bills market.

As a result, average yield settled at 10.7% W-o-W. The 27-JAN-22 (-131bps) Instrument enjoyed most buying interest, trailed by 23-MAR-25 (-62 bps) and 13-MAR-27 (-58 bps) respectively.

We anticipate a sustained bullish momentum in the bonds market as local investors continue to seek alternatives to reinvest maturing OMO bills. Thus, investors are advised take advantage of instruments with attractive yield.