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Investors' Sentiment Remain Weak in the NT-Bills Secondary Market as Average Yield Closes Flat

Bonds & Fixed Income	604 VIEWS
Bonds & Fixed Income
604 VIEWS

Monday, November 30, 2020 / 12:20 PM / by Afrinvest Research / Header Image Credit: Novarick Homes

Last week, the weak investors' sentiment previously recorded in the Nigerian Treasury Bills ("NT-Bills") secondary market was sustained given the depressed yield environment. Despite the buoyant system liquidity (N240.3bn long as at Monday), the week started out on a quiet note and was maintained throughout with minimal trading activities witnessed on the longer end of the curve.

Consequently, average yields contracted marginally by 1bp W-o-W to remain at 0.1%. Particularly, slight buying interest was recorded on the long-dated maturities such as 30-Sep-21, 14-Oct-21 and 28-Oct-21 which declined 6bps, 5bps and 3bps W-o-W respectively.

At the Primary Market Auction ("PMA") on Wednesday, the CBN offered a total of N150.6bn worth of NT-Bills across the 91-, 182- and 364-day tenors. The offer maintained a significant level of demand as it recorded a total bid-to-cover ratio of 2.9x (N150.6bn offered against N445.9bn total subscribed). All tenors were oversubscribed with investor demand strongest at the 364-day instrument which was oversubscribed by 3.0x(N111.1bn offered against N333.8bn subscribed). In addition, stop rates contracted by 0.02%,0.06% and 0.15% respectively.

Please see a detailed summary in the table below:

Auction Date	25-Nov-20	25-Nov-20	25-Nov-20
Allotment / Issue Date	26-Nov-20	26-Nov-20	26-Nov-20
Tenor	91-Day	182-Day	364-Day
Offer Amount (N)	20,372,790.00	19,157,656.00	111,071,723.00
Total Subscription (N)	57,297,849.00	54,805,160.00	333,834,247.00
Allotment (N)	5,849,034,000	19,157,656.00	111,071,723.00
Range of Bid Rates (%)	0.0001 - 0.6500	0.0100 - 0.0900	0.300 - 25.000
Stop Rates (%)	0.0215	0.09	0.15
Previous Stop Rates (%)	0.04	0.15	0.30
Bid-to-Cover Ratio	2.8x	2.9x	3.0x
Allotment Ratio	0.1x	0.4x	0.3x

This week, we expect inflows from maturing OMO bills worth N418.9bn to hit system and further boost system liquidity N295.5bn (in the positive as at Friday). However, we do not anticipate an improvement in demand as investors continue to seek alternatives from the current suppressed NT-Bills secondary market yields. Thus, we maintain our advice that investors remain on the lookout for possibly higher yielding instruments from corporates.

Please see indicative secondary market NT-Bills rates below:

Maturity	Tenor (Days)	Rate (%) p.a.	Yield (%) p.a.
11-Feb-21	73	1.15	1.15
29-Apr-21	150	1.85	1.86
10-Jun-21	192	2.20	2.23
26-Aug-21	269	2.40	2.44
16-Sep-21	290	2.79	2.85

Rates are valid till 01:45pm today (30-Nov-2020)

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

FGN Bonds Update: Bullish Sentiments Continues as Average Yield Contracts by 12bps WoW to 3.9%

The performance in the FGN bond secondary market last week was bullish, as investors continue to seek alternatives from the unimpressive yields in the NT-Bills market. As a result, average yield across all tenors shed 12bps W-o-W to settle at 3.8% from 4.0% the previous week. Particularly, the JAN-2022 and JUL-2030 maturities witnessed the most buying interest, contracting -83bps and -55bps W-o-W respectively.

The Monetary Policy Committee ("MPC") held its last meeting for the year to discuss monetary policy directions. The meeting ended with a neutral outcome as the members of the committee voted unanimously to maintain all policy parameters as the Monetary Policy Rate ("MPR") was left at 11.5%.

Going into the week, The Debt Management Office ("DMO") is scheduled to auction the 2- and 3-year tenor FGN savings bond for the month of December 2020. Furthermore, we expect yields to remain pressured as liquidity levels remain elevated. We therefore advice investors to take position on the relatively more attractive maturities along the curve while looking out for possible corporate offerings.

Please see indicative secondary market bonds rates below:

Bond	Tenor (Years)	Yield (%)	Coupon (%)	Implied Price (N)
Jan-26	6	2.90	12.50	145.54
Mar-27	7	3.00	16.29	175.72
Feb-28	8	3.10	13.98	169.96
Apr-29	9	3.20	14.55	183.05
Jul-34	14	4.20	12.15	181.85
Mar-36	16	4.23	12.40	191.33
Apr-37	17	4.60	16.25	233.02
Apr-49	29	6.19	14.80	214.46