Sell-Offs Push Secondary Market NT-Bills Average Yield 53bps Higher WoW to 1.1%

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Monday, February 01, 2021  / 2:31 PM / by Afrinvest Research / Header Image Credit: iStock


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Tight financial system liquidity persisted on all trading sessions last week (N29.6bn short as at Friday, 29-Jan-21) resulting in sell-offs across the yield curve, as investors freed up positions to meet their cash obligations. Thus, average yield in the NT-Bills secondary market advanced 53bps W-o-W to close at 1.1% on Friday.


Specifically, the longer dated NT-Bills advanced the most, up 80bps W-o-W with 30-Sep-21 and 14-Oct-21 recording the most sell-offs, up 1.1% apiece. In the same vein, short and medium term NT-Bills inched 34bps and 25bps respectively.

 

Rates also expanded 28bps higher on average at the NT-Bills primary market as the CBN conducted a Primary Market Auction ("PMA") last Wednesday, 27th January 2021 offering a total of N187.3bn which had a 1.6x oversubscription (Total Subscription: N289.6bn). Precisely, stop rates increased 5bps, 30bps and 50bps on the 91-, 182- and 364-Day bills respectively.

 

Please see below details of the last auction:

Auction Date

27-Jan-21

27-Jan-21

27-Jan-21

Allotment / Issue Date

28-Jan-21

28-Jan-21

28-Jan-21

Tenor

91-Day

182-Day

364-Day

Offer Amount (N)

7,500,000,000

54,592,585,000

125,203,918,000

Total Subscription (N)

20,180,000,000

55,981,000,000

213,450,000,000

Allotment (N)

11,388,756,000

47,476,888,000

123,113,735,000

Range of Bid Rates (%)

0.3480 - 2.4099

0.9400 - 5.0000

1.0000 - 12.9900

Stop Rates (%)

0.55

1.30

2.00

Previous Stop Rates (%)

0.50

1.00

1.50

Bid-to-Cover Ratio

1.8x

1.2x

1.7x

Allotment Ratio

0.6x

0.8x

0.6x


  

Following the auction, market players shifted focus to the secondary market to fill unmet orders in the PMA as liquidity levels stood at N348.7bn on Thursday, due to inflows from Primary Market Repayments N49.6bn and N187.3bn on OMO and NT-Bills respectively. However, sell-offs, especially on long-dated bills persisted as investors anticipate higher stop rates in upcoming auctions.

 

This week, a total of N157.6bn worth of OMO repayments is scheduled to hit the financial system bolstering liquidity levels. Looking ahead, we opine that secondary market rates may maintain bearish sentiments on the back expectations for higher yields and sustained sell-offs. Our advice is for investors to cautiously position in NT-Bills that advanced last week.

 

Please see indicative secondary market NT-Bills rates below:

Maturity

Tenor (Days)

Rate (%) p.a.

Yield (%) p.a.

13-May-21

101

1.20

1.20

15-Jul-21

164

1.73

1.74

26-Aug-21

206

2.00

2.02

28-Oct-21

269

2.40

2.44

25-Nov-21

297

2.64

2.70

Rates are valid till 01:45pm today (01-Feb-2021)

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

 

FGN Bonds Update:

Sustained Bearish Outing on Domestic Bonds as Average Yield Increases 93bps W-o-W to 7.9%.

The Monetary Policy Committee ("MPC") met on Tuesday and Wednesday last week where it was unanimously agreed to maintain status quo on all parameters. In anticipation of the MPC meeting outcome, the bonds space started off the week on a quiet note with investors mostly on the side-lines.

 

Later trading sessions last week also maintained the quiet tone following the 28bps increase in average stop rates at the NT-Bills PMA last Thursday which led market players to remain cautious, in light of the possibility of further increase in yields. Consequently, average yield across on-the-run FGN bonds advanced 93bps W-o-W to close at 7.9%.

 

The short, medium and long dated bonds advanced 100bps, 61bps and 124bps W-o-W respectively. In more detail, yields on all instruments increased save for JAN-2022 (-94bps) with demand triggered by more attractive opportunity as against 1-Year secondary market NT-Bills offer and 364-Day PMA stop rate (2.0%). On the flipside, APR-2023 (+2.4%), MAR-2024 (+0.9%) and APR-2037(+1.5%) expanded the most.


This week, we expect sell-offs to ease due to the MPC's dovish stance and do not rule out slight uptick in demand given improved yields across the curve. Thus, qualified investors are advised to take advantage of yields that advanced last week. 

 

Please see indicative secondary market bond rates below:

Bond

Tenor (Years)

Yield (%)

Coupon (%)

Implied Price (N)

Apr-23

2

4.45

12.75

117.45

Mar-24

3

5.40

14.20

124.92

Mar-25

4

5.55

13.53

129.15

Jan-26

5

6.60

12.50

124.66

Mar-27

6

7.40

16.29

143.12

Feb-28

7

7.50

13.98

135.00

Jul-34

13

9.25

12.15

122.06

Mar-36

15

9.30

12.40

124.88

Apr-37

16

9.30

16.25

157.56

Apr-49

28

9.60

14.80

150.29

Rates are valid till 01:45pm today (01-Feb-2021)

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


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