Strong Demand from Investors as Average Yields Dip 72bps WoW to 0.4%; PMA to Hold on Wednesday

Proshare

MondayOctober 26, 2020 / 3:04 PM / Afrinvest Research / Header Image Credit: CPD First

 

Last week, the Nigerian Treasury Bills ("NT-Bills") secondary market witnessed another bullish performance for a third consecutive week, driven by sustained buoyant liquidity levels which stood at N771.8bn in the positive as at Monday. As a result, average yield across all tenors declined 72bps W-o-W to close at 0.4% from 1.1% the previous week.


In more detail, significant demand was witnessed at the longer-end of the curve, as its average yield fell 112bps W-o-W to 0.5% from 1.6% the previous week. Particularly, the 16-Sep-2109-Sep-21 and 26-Aug-21 bills enjoyed the most buying interest, contracting 122bps, 121bps and 120bps W-o-W respectively.


On Thursday, the Apex Bank conducted an Open Market Operation ("OMO") auction where a total of N100.0bn was offered across the 138-, 180- and 362-day tenors. The Central Bank allotted its total offer across all tenors, despite the strong demand from investors with a bid-to-cover ratio of 3.1x (N314.4bn subscribed). In addition, stop rates were tightened across the short-, medium- and long-term offers to 3.7%, 6.8%, and 8.0% respectively.


This week, the Central Bank of Nigeria ("CBN") is slated to conduct NT-Bills Primary Market Auction ("PMA") on Wednesday, where a total of N134.8bn (N19.6bn lower than the expected maturity of N154.4bn) worth of NT-Bills will be rolled over across the 91-, 182- and 364-day tenors.


Please see below our PMA expectations:

Tenor

91- Day

182 - Day

364 - Day 

Offer Amount (N)

29,839,651.00

10,615,398.00

93,915,151.00

Previous Stop Rate

1.0000%

1.0000%

2.0000%

Expected Stop Rate Range

1.0000% - 1.1000%

1.0000% - 1.2000%

1.900% - 2.1000%

 

Thus, we expect reduced buying sentiment today as investors may trade cautiously in anticipation of the Wednesday's PMA. Nevertheless, we expect activities to pick up towards the end of the week as investors may seek to place their lost primary market bids into the NT-Bills secondary market.


Furthermore, we expect yields in the secondary market to remain pressured due to the high liquidity levels (N1.3tn long as at Friday) along with the expected NT-Bills maturity worth N154.4bn scheduled to hit the system on Thursday. Therefore, we advise investors to take position in maturities with the least contracting yields as well as possible commercial paper offerings.


Please see indicative secondary market T-Bills rates below:

 

Maturity

Tenor (Days)

Rate (%) p.a.

Yield (%) p.a.

31-Dec-20

66

2.45

2.46

25-Feb-21

122

3.30

3.34

13-May-21

199

3.60

3.67

15-Jul-21

262

3.90

4.01

9-Sep-21

318

4.06

4.21

Rates are valid till 01:45pm today (26-Oct-20)

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

 

FGN Bond Update: Bullish Performance as Average Yield Contracts 76bps W-o-W to 4.2%

Last week, the FGN Bond secondary market furthered its bullish performance into another week, on the back of high liquidity levels. Consequently, average yields on all instruments dipped 76bps W-o-W to 4.2% from 5.0% the previous week as the Mar-27 and Apr-37 maturities witnessed the most buying interest, contracting 142bps and 127bps respectively.


On Wednesday, the Debt Management Office ("DMO") offered a total of N30.0bn across the 15-year and 25-year re-opening instruments. The offer was met with a very strong demand recording a total bid-to-cover ratio of 7.9x (N30.0bn offered vs. N235.9bn subscribed).


Please see below a detailed summary of the auction:

 

12.50% FGN MAR 2035

9.80% FGN JUL 2045

Tenors:

15-Yr Re-opening

25-Yr Re-opening

Term-To-Maturity:

14 Years, 5 Months

24 Years, 9 Months

Auction Date:

21-Oct-20

21-Oct-20

Issue Date

23-Oct-20

23-Oct-20

Amount Offered:

N15.0 billion

N15.0 billion

Subscription:

N169.2 billion

N66.7 billion

Amount Allotted:

N20.0 billion

N25.0 billion

Range of Bids:

4.0000% - 12.0000%

4.5000% - 12.5000%

Stop Rates:

4.9700%

6.0000%

Previous Stop Rates:

8.5200%

8.9000%

Bid to Cover Ratio:

11.3x

4.4x

Allotment Ratio:

0.1x

0.4x

 

This week, we expect a bullish performance in the bonds secondary market due to liquidity driven activity along with investors seeking to fill their lost bids from the PMA and 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 bond rates below:

Bond

Tenor (Years)

Yield (%)

Coupon (%)

Implied Price (N)

Mar-25

5

1.25

13.53

152.52

Jan-26

6

2.25

12.50

150.36

Mar-27

7

2.75

16.29

178.87

Feb-28

8

2.80

13.98

173.56

Jul-34

14

4.15

12.15

183.05

Mar-36

16

4.20

12.40

192.27

Apr-37

17

4.25

16.25

241.15

Apr-49

29

6.15

14.80

215.63

Rates are valid till 01:45pm today (26-Oct-2020)

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


Proshare Nigeria Pvt. Ltd.


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Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd. 

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