Sustained Bullish Run as Average Yield Falls 0.7% WoW to 12.6%

Proshare

Monday, October 14, 2019 / 06:30 PM / By Afrinvest Research / Header Image Credit:Sun Nigeria

 

Last week, the Treasury Bills ("T-Bills") market extended its bullish run into a third consecutive week as sustained demand kept yields subdued on the back of buoyant system liquidity which stood at N248.5bn in the positive as at Monday. This resulted in significant buying interests across the curve with short-dated maturities such as 02-Jan-20 (-200bps), 07-Nov-19 (-171bps) and 14-Nov-19 (-151bps) enjoying the most demand. Consequently, average yield across tenors trended lower by 67bps W-o-W to 12.6% from its previous 13.3%.

 

On Thursday, the Central Bank continued its regular interventions, offering a total of N80.0bn at the Open Market Operations ("OMO") auction across the 91- (N10.0bn), 182- (N20.0bn) and 364- day (N50.0bn) tenors. The medium-term offer was met with moderate demand with a bid-to-cover ratio of 0.9x (N20.0bn offered vs N18.9bn subscribed) while the long-term offer had a bid-to-cover ratio of 20.1x (N50.0bn offered vs N1.0tn subscribed), signalling very strong demand.

 

As a result, the high level of demand at the longer maturity which were unmet filtered into the secondary market especially on the18-Jun-20 bill which declined 101bps W-o-W. However, the short-dated offer resulted in a "no-sale" as investors' bids ranged higher to match rates for similar maturities in the secondary market.

Going into the week, we anticipate that the CBN will rollover a total of N121.9bn worth of maturing T-Bills at the Primary Market Auction ("PMA") slated for Wednesday and expect to see significant demand at the long-term offer stemming from the unfilled bids at last week's OMO auction.

 

Please see details of this week's PMA below:

TENOR

91-DAY

182-DAY

364-DAY

Offer Amount (N' million)

5,849,034

3,500,000

112,535,643

Last Stop Rate (%)

11.08%

11.60%

13.20%

Expected Stop Rate Range (%)

10.95%-11.10%

11.50%-11.70%

12.90%-13.10%

 

Also, we anticipate the bullish sentiment to persist as investors take position in the secondary market, seeking to fill their lost bids from Thursday's OMO auction. Furthermore, we expect yields to continue its downtrend supported by high liquidity (N242.6bn long as at Friday) and that the Apex bank will continue its customary mop-ups as N121.9bn worth of maturing T-Bills are scheduled to hit the financial system. Thus, we advise investors to trade cautiously and take position in bills least affected by the yield declines and primary market offers.

 

Please see indicative T-Bills rates below:

Maturity

Tenor (Days)

Rate (%) p.a.

Yield (%) p.a.

26-Dec-19

73

10.00

10.20

16-Jan-20

94

10.45

10.74

20-Feb-20

129

11.00

11.44

02-Apr-20

171

11.00

11.60

24-Sep-20

346

11.71

13.17

OMO Auction

c.100

10.64

10.93

OMO Auction

c.200

11.20

11.86

OMO Auction

c.350

12.60

14.41

Rates are valid till 01:45pm today (14-Oct-19)

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

 

FGN Bonds Update: Bullish Trend Persists for Second Consecutive Week as Average Yield Dips 8bps W-o-W to 14.1%

Last week, the bonds market continued its bullish trend as the demand recorded was spurred by the yield downtrend in the T-Bills space. As a result, average yield dipped 8bps W-o-W to 14.1% from 14.2% the previous week particularly on the 23-Oct-19 (-188bps) and 13-Feb-20 (-69bps) maturities.

 

Please see indicative FGN bond rates below:

Bond

Tenor (Years)

Yield (%)

Coupon (%)

Implied Price (N)

Jul-21

2

13.80

14.50

101.46

Jan-22

3

14.05

16.39

104.96

Apr-23

4

14.15

12.75

95.85

Mar-24

5

13.95

14.20

101.52

Mar-25

6

13.85

13.53

98.01

Jan-26

7

14.12

12.50

92.73

Mar-27

8

14.10

16.29

109.70

Feb-28

9

14.12

13.98

98.56

Jul-34

15

14.38

12.15

86.60

Mar-36

17

14.40

12.40

88.06

Apr-37

18

14.40

16.25

111.51

Apr-49

30

14.50

14.80

101.26

Rates are valid till 01:45pm today (14-Oct-19)

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

 

This week, we anticipate that the demand witnessed in the last two weeks will persist as investors continue to take position in the secondary market on the back of lower yields in the T-Bills market in addition to the expected inflows from coupon payments worth N92.0bn. Thus, we advise investors to take advantage of the relatively more attractive yields on the 2026s and 2028s maturities.

 

Proshare Nigeria Pvt. Ltd.


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