Mild Bullish Sentiments Drag Yield by 4bps WoW

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Monday, August 10, 2020 / 2:34 PM / By Afrinvest Research / Header Image Credit: Squire Wealth Advisors

 

Proshare Nigeria Pvt. Ltd.


In line with our expectation, trading in the Nigerian Treasury Bills ("NT-Bills") secondary market was mildly bullish as slight demand from lost bids (c. N202.3bn) at the Primary Market Auction ("PMA") that held 2 weeks ago filtered into the market. The week kicked off with high liquidity in the system (c. N778.0bn on Monday), but this plunged to c.N268.6bn on Tuesday following CRR debits by the CBN. In the absence of inflows from maturities and Federal Account Allocation Committee ("FAAC") disbursements during the week, liquidity further declined to N220.7bn on Friday.

 

Nevertheless, mild buying interests were recorded across the trading sessions and as a result, average yield dipped, albeit marginally, by 4bps W-o-W to close at 1.7%.  A bulk of the demand was witnessed at the short and medium end of the curve, particularly the 27-Aug-20 (-28bps), 14-Jan-21 (-20bps) and17-Sep-20 (-15bps) maturities while the long-term instruments traded relatively flat.

 

This week, liquidity is expected to improve as maturing NT-Bills and Open Market Operation ("OMO") instruments worth N56.8bn and N88.0bn respectively hit the system.

 

On Wednesday, the Apex bank is slated to rollover the maturing NT-Bills at the PMA. While we expect investors to trade cautiously in anticipation of the PMA, we also expect yields to remain low as investor demand on the bills still overshadow supply.

 

Please see below our PMA expectations:

Tenor

91- Day

182 - Day

364 - Day 

Offer Amount (₦)

19,783,588,000.00

10,000,000,000.00

27,000,000,000.00

Previous Stop Rate

1.2000%

1.5000%

3.4000%

Expected Stop Rate Range

1.1500% - 1.3000%

1.2500% - 1.4000%

3.000% - 3.3500%

 

In addition, we expect the Apex bank to conduct an OMO auction this week following about four weeks of non-issuance of new OMO bills. We also expect the release of the Consumer Price Index ("CPI") data for July by the National Bureau of Statistics.

 

We recommend that investors source for attractive NT-Bills along the curve as well as possible corporate offerings such as Commercial Papers, while investors with a long-term perspective take advantage of more attractive short-term bonds that advanced in yield last week.

 

Please see indicative secondary market NT-Bills rates below:

Maturity

Tenor (Days)

Rate (%) p.a.

Yield (%) p.a.

10-Sep-20

31

2.60

2.61

26-Nov-20

108

3.85

3.89

14-Jan-21

157

4.18

4.26

13-May-21

276

4.69

4.86

10-Jun-21

304

4.81

5.01

Rates are valid till 01:45pm today (10-Aug-2020)

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

 

Proshare Nigeria Pvt. Ltd.


FGN Bonds Update: The Bears Resurface as Average Yield Rises to 7.8%; the DMO Resumes FGN Savings Bond Offer

The three-week bullish streak in the FGN bonds secondary market came to a halt last week following sell offs by Pension Fund Administrators ("PFAs") seeking to raise cash for Pension Commission ("PENCOM") remittances. Weak sentiments were also observed on the back of tightened financial system liquidity. Consequently, average yield across all tenors advanced 71bps W-o-W to close at 7.8% on Friday.

 

Notably, the mid and long segments of the curve witnessed the most sell offs with the Jan-26 (+176bps), Mar-36 (+169bps), and the Mar-35 bonds (+163bps) advancing the most. Conversely, yields on the short-term bonds - Jan-22, Jul-21 and Apr-23 instruments declined 87bps, 23bps and 3bps W-o-W respectively due to mild buying interests.

 

On Wednesday, the Debt Management Office ("DMO") announced the resumption of the FGN Savings Bond Offer set to commence today. This is coming after four months of suspension due to the restrictions on activities as part of measures adopted by the Government to curtail the spread of the COVID-19 pandemic.

 

Going into the week, we anticipate the release of the FGN Savings Bond Offer by the DMO which could also sway market sentiments. We also expect some demand as investors seek to bargain hunt instruments with relatively attractive yields that advanced last week.

 

Please see indicative secondary market bond rates below:

Bond

Tenor (Years)

Yield (%)

Coupon (%)

Implied Price (N)

Jan-22

2

2.10

16.39

120.46

Apr-23

3

3.50

12.75

123.72

Mar-24

4

3.80

14.20

134.60

Mar-25

5

4.45

13.53

137.50

Jan-26

6

5.45

12.50

132.84

Mar-27

7

6.40

16.29

152.54

Feb-28

8

6.70

13.98

142.53

Jul-34

14

8.30

12.15

131.43

Mar-36

16

8.20

12.40

136.58

Apr-37

17

8.95

16.25

162.60

Apr-49

29

9.10

14.80

157.73

Rates are valid till 01:45pm today (10-Aug-2020)

*Please note that the minimum subscription for Bonds is N20,000,000.00

 

Proshare Nigeria Pvt. Ltd.


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  2. The Bears Took a Pause, Dampening Yields Slightly In the Fixed Income Space
  3. DMO Announces the Resumption of FGN Savings Bond Offer in August 2020
  4. Local Investors Turn Bears To Meet Up Regulatory Funding Obligations
  5. Special CRR Debit by Central Bank of Nigeria Gulps a Larger Chunk of the Interbank System Liquidity
  6. Anchoria Fixed Income Monitor: Forex Illiquidity Lingers
  7. Average NT-Bills Yield Remains Unchanged at 1.8% as Investors Partake in PMA
  8. Heavy Demand at the NTB Auction as Rates Dropped Significantly On 91 days and 182 days Bills
  9. Heavy Market Liquidity Continues To Drive OMO Rates Down The Tide
  10. Treasury Bill Auction Holds On Wednesday July 29th, 2020
  11. Interbank System Awash With Liquidity As Apex Bank Holds Back On OMO Issuance
  12. Anchoria Fixed Income Monitor: Booming Gold Price amid Pandemic
  13. Average NT-Bills Yield Declines to 1.8%; PMA Holds this Wednesday
  14. NOVA Merchant Bank's Debut N10bn Bond Oversubscribed by 300%

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