Sell-offs Push Average Yield up to 3.5%, CBN Raises the CRR by 500bps to Curb System liquidity

Proshare

Monday, January 27, 2020/ 12:36 PM /  By Afrinvest Research / Header Image Credit:  FolioNG

 

The performance in the Nigerian Treasury Bills ("NT-Bills") secondary market last week was largely mixed with mild buying interests witnessed on the short end of the yield curve while the mid tenor instruments witnessed slight sell offs. Although system liquidity remained positive following the Federation Accounts Allocation Committee ("FAAC") disbursement (c. N311.0bn) on Tuesday, trading activities were relatively quiet as investors traded cautiously ahead of the Monetary Policy Committee ("MPC") meeting of the CBN. Consequently, average yield across all tenors marginally expanded by 8bps W-o-W to settle at 3.5% on Friday.  Major sell-offs were recorded on the 16-Apr-20 (+112bps), 30-Apr-20 (+97bps) and 11-Jun-20 (+51bps) maturities.

 

At the first MPC meeting of the CBN this year, the Committee surprisingly voted to raise the Cash Reserve ratio ("CRR") by 500bps to 27.5% while holding the Monetary Policy Rate constant at 13.5% and the Liquidity Ratio at 30.0%. This is the first change in the CRR since March 2016 as the Apex bank aims to restrain system liquidity and curb inflationary pressures.

 

Going into this week, The CBN is expected to rollover a total of N229.6bn worth of maturing NT-Bills at the Primary Market Auction ("PMA") on Wednesday.

 

Please see details of this week's PMA below:

Tenor

91-Day

182-Day

364-Day

Offer Amount (N)

28,018,956,000

33,684,524,000

167,932,674,000

Last Stop Rate (%)

2.9500

3.9500

5.0900

Expected Stop Rate Range (%)

2.9000% - 2.9300%

3.6000%-3.8000%

4.9500%-5.000%

 

Furthermore, system liquidity is expected to be boosted by an additional inflow of N495.0bn from OMO maturities and we expect to see increased activities in the secondary market. Depending on how the CBN aims to implement the CRR increase in the short term, we expect the policy to alter the demand witnessed over the previous weeks as an additional c. N834.0bn worth of liquidity is likely to be sterilized from the financial system.

 

Investors are thus advised to trade cautiously while taking advantage of opportunities at the PMA and relatively attractive offers in close alternatives such as short-term FGN bonds (with TTM of 2-3 years) as we anticipate an initial knee-jerk reaction to the CBN's new policy on CRR.

 

Please see indicative secondary market T-Bills rates below:

Maturity

Tenor (Days)

Rate (%) p.a.

Yield (%) p.a.

27-Feb-20

31

2.20

2.20

2-Apr-20

66

2.80

2.81

13-Aug-20

199

3.50

3.57

24-Sep-20

241

4.30

4.43

29-Oct-20

276

4.80

4.98

Rates are valid till 01:45pm today (27-Jan-2020)

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

 

FGN Bonds Update: Bullish Sentiments Resurface as Average Yield Contracts by 41bps W-o-W to 10.0%

Contrary to happenings in the T-Bills space, activity in the secondary bonds market was bullish as average yield on all instruments declined by 41bps W-o-W to settle at 10.0% on Friday. The bonds market started off on a mildly bullish note due to investors' anticipation of the bond auction that held on Wednesday. However, bullish sentiments intensified after the bond auction as the volume of lost bids (c. N214.5bn) ushered in pockets of demand into the secondary market. Major buying interests were recorded on the short end of the yield curve particularly the 15-Jul-21 (-149bps), 13-Feb-20 (-84bps) and 27-Jan-23 (-51bps) maturities.

 

At the first bond auction of the year, the Debt Management Office ("DMO") offered N155.0bn across the APR-2023 (reopening), APR-2029 (reopening), and APR 2049 (reopening) bonds. The result showed a total subscription of N624.5bn, translating to a 4.0x bid-to-cover ratio (vs. 1.9x at the previous auction which held on 23-Dec-19). As expected, all tenors were oversubscribed owing to robust system liquidity.  Nevertheless, the 30year (re-opening) enjoyed the most interest by a strong 6.2x with the stop rates across the reopening offers declining by 1.2%, 0.9% and 0.4% respectively.

 

Please see below a summary of the Bond auction result

Auction Date

22-Jan-20

22-Jan-20

22-Jan-20

Allotment / Issue Date

24-Jan-20

24-Jan-20

24-Jan-20

Term to maturity

3 Years, 3 Months

9 Years, 3 Months

29 Years, 3 Months

Offer Amount (N)

50,000,000,000.00

50,000,000,000.00

55,000,000,000.00

Total Subscription (N)

80,750,000,000.00

201,980,000,000.00

341,770,000,000.00

Allotment (N)

29,300,000,000.00

106,390,000,000.00

274,300,000,000.00

Range of Bid Rates (%)

9.0000 – 12.7500

10.5500 – 14.5500

9.4000 – 13.5000

Stop rates (%)

9.8500

11.1250

12.5600

Previous stop rates (%)

11.0000

12.0000

13.0000

Bid-to-Cover Ratio

1.6x

4.0x

6.2x

Allotment Ratio

0.4x

0.5x

0.8x

 

Going into the week, we expect some initial sell-offs at the beginning of the week on the new CBN policy on CRR, however, the bullish momentum may pick up steam towards the end of the week due to robust system liquidity especially as local investors seek higher yielding alternatives to NT-Bills.

 

Please see indicative FGN bond rates below:

Bond

Tenor (Years)

Yield (%)

Coupon (%)

Implied Price

Jul-21

2

6.70

14.50

110.72

Jan-22

3

6.80

16.39

117.65

Apr-23

4

8.60

12.75

111.51

Mar-24

5

9.00

14.20

117.58

Mar-25

6

9.15

13.53

117.65

Jan-26

7

9.40

12.50

113.95

Mar-27

8

10.10

16.29

130.91

Feb-28

9

10.20

13.98

120.43

Jul-34

15

10.65

12.15

110.94

Mar-36

17

10.70

12.40

112.90

Apr-37

18

10.70

16.25

143.20

Apr-49

30

11.80

14.80

124.48

Rates are valid till 01:45pm today (27-Jan-2020)

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

 

Proshare Nigeria Pvt. Ltd.


Related News

  1. A Healthy Ratio for the Public Debt Stock
  2. January 2020 FGN Bond Auction Oversubscribed
  3. Summary of FGN Bond Auction Results For January 2020
  4. DMO Releases Public Debt Data as at Sept 2019 and Plans to Issue a Third Sovereign Sukuk
  5. Bullish Streak Sustained in NT-Bills Market, Union Bank CP Available
  6. UBN Notifies of Issuance of Up to N20 Billion in Series 3 and 4 Commercial Paper
  7. FLOURMILL Issues Up To N20bn In 3-Yr and 5-Yr Series 3 Bonds
  8. Invest in FGN Monthly Bond Auction - January 2020
  9. Union Bank of Nigeria Plc, Series 3 and 4 CP Notes Now Open
  10. Treasury Bill Auction Holds On Wednesday Jan 15th, 2020
  11. Sustained Demand for NT-Bills Suppresses Average Yield Further to 4.2%, Down 43bps WoW
  12. Investor Demand Expected to Remain Strong as Average NT-Bills Yield Dips to 4.6% WoW
  13. January 2020 FGN Savings Bonds Offer for Subscription

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.
READ MORE:
Related News
SCROLL TO TOP