NT-Bills Secondary Market Turned Bearish as Average Yield Improved 34bps WoW to Close at 6.10%

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Monday, May 31, 2021 / 12:58 PM / By Afrinvest Research / Header Image Credit: Warrior Trading


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In the past week, the Nigerian Treasury Bills ("NT-Bills") secondary market closed on a bearish note as investors sold off to position in the Primary Market Auction ("PMA") that took place on Wednesday, 26-May-21 to seek higher yields. The bearish sentiment can also be attributed to the low liquidity level in the market. Consequently, the average yield across all maturities improved by 34bps W-o-W from 5.76% in the previous week to close at 6.10% on Friday.


Specifically, the average yield on the short-term bills recorded the most gains, rising 72bps W-o-W to 3.99% from 3.82% especially the 10-JUN-21 (+1.01%), 1-JUL-21 (+0.84%), and 15-JUL-21 (+0.73%) maturities that witnessed the most sell-offs. Similarly, the average yield in medium- and long-term NT-Bills improved by 0.31% and 0.14% W-o-W respectively as market participants focused on the PMA.

At the PMA on Wednesday, 28-May-21, the Nigerian Apex bank offered a total of
N63.1bn to investors across the 91-, 182-, and 364-Day tenors. The short- and medium-tenor instruments recorded weak demand with a subscription ratio of 0.2x and 0.3x respectively, while investors' interest was overwhelmingly focused at the longer-end of the curve with a subscription ratio of 14.4x.

In addition, the excessive demand for the longer-dated instrument forced rates southwards by 10bps to 9.65% from 9.75% at the previous auction, while the 91- and 182-Day offers retained their previous stop rates of 2.50% and 3.50% respectively.


Please see below details of the PMA:

Auction Date

26-May-21

26-May-21

26-May-21

Allotment Date

27-May-21

27-May-21

27-May-21

Tenor

91-Day

182-Day

364-Day

Offer (₦)

24,175,790,000

19,157,656,000

19,842,352,000

Subscription (₦)

4,430,978,000

5,527,561,000

286,464,648,000

Allotment (₦)

3,123,978,000

4,118,561,000

143,884,922,000

Range of Bids (%):

2.4500 - 10.0000

3.4900 - 12.0000

9.0000 - 13.9900

Stop Rates (%):

2.50

3.50

9.65

Previous Stop (%)

2.50

3.50

9.75

Bid-to-Cover Ratio

1.4x

1.3x

2.0x

Allotment Ratio

0.1x

0.2x

7.3x

Subscription Ratio

0.2x

0.3x

14.4x


This week, we expect activity level in the NT-Bills secondary market to improve due to buoyant financial system liquidity, which stood at 488.5bn short as at   28-May-21). We advise investors to take advantage of the improved yields in the secondary market across all tenors particularly the short-end of the curve as we expect market corrections in the coming weeks. 

Please see the indicative secondary market NT-Bills rates below:

Maturity

Tenor (Days)

Rate (%) p.a.

Yield (%) p.a.

26-Aug-21

87

2.10

2.11

16-Sep-21

108

3.05

3.08

25-Nov-21

178

4.63

4.74

10-Feb-22

255

5.10

5.29

31-Mar-22

304

6.46

6.83

Rates are valid till 01:45 pm today (31-May-21)

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



Proshare Nigeria Pvt. Ltd.


FGN Bonds Update: Bearish performance Sustained as Average Yield Advances 8bps to Settle at 12.52%


In line with our expectation, the FGN Bond secondary market recorded some sell-offs as liquidity levels remain pressured and investors positioning to seek higher yields in the market. Consequently, the average yield in the market improved slightly by 8bps W-o-W to 12.52% from the previous 12.44%.


Specifically, the average yield on short-tenored instruments advanced the most by 37bps W-o-W to settle at 10.06%. In the same vein, the longer end of the curve also saw an average improvement of 3bps W-o-W for the same period to close at 14.08%. However, investors were seen to pick interest in the mid-tenor instruments as average yield dipped 12bps to close the week at 13.06%.

In more detail, the APRL-21, JUL-21, and JAN-21 saw the most buying interest, contracting 135bps, 73bps and 31bps W-o-W respectively. While the most sell-offs were recorded on the APR-29 and MAY-29 instruments with yields advancing 21bps and 20bps respectively. This signals investors' expectation of future improvement in rates as they hold shorted-dated maturities.

Going into the week, we expect sustained bearish trend in the secondary market particularly in the mid- to long-end of the curve and advice investors to position in attractive yields in the market particularly at the short end of the curve.


Please see indicative secondary market bonds rates below:

Bond

Tenor (Years)

Yield (%)

Coupon (%)

Implied Price (N)

Apr-23

2

           10.80

            12.75

                  103.26

Mar-24

3

           10.85

            14.20

                  107.83

Mar-25

4

           10.85

            13.53

                  108.15

Jan-26

5

           11.90

            12.50

                  102.06

Mar-27

6

           12.30

            16.29

                  116.13

Feb-28

7

           12.30

            13.98

                  107.49

Jul-34

13

           13.20

            12.15

                    93.49

Mar-36

15

           13.20

            12.40

                    94.81

Apr-37

16

           13.20

            16.25

                  120.02

Apr-49

28

           13.30

            14.80

                  110.93

Rates are valid till 01:45 pm today (31-May-21) 
*Please note that the minimum subscription for FGN Bonds is N20,000,000.00


Proshare Nigeria Pvt. Ltd.


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