Sustained Demand Further Compress Average NT-Bills Yield by 1.4% WoW to 7.3%

Proshare

Monday, December 02, 2019  / 02:59 PM / by Afrinvest Research / Header Image Credit: BookKeeper

 

The Nigerian Treasury Bills ("NT-Bills") secondary market maintained its bullish streak last week, as investors demand intensified towards the end of the week following the results of the Primary Market Auction ("PMA") which held mid-week. As a result, average yield across tenors maintained its southward trajectory, declining 1.4% W-o-W to 7.3% from 8.7% the previous week. Recording the most significant declines were the short- and mid-tenured bills, buoyed by strong demand from investors on the 02-Jan-20 (-5.9% W-o-W) and 16-Apr-20 (-6.5% W-o-W) bills. 

At the last Monetary Policy Committee ("MPC") of the Central Bank of Nigeria's ("CBN") meeting of the year which ended on Tuesday, the Committee retained all policy rates.

 

On Wednesday, the Debt Management Office ("DMO") through the CBN held a PMA where a total of N150.6bn was offered across the 91-, 182- and 364-day tenors. This offer was met with significant demand, recording a bid-to-cover ratio of 3.5x (N533.9bn subscribed). The mid- and short-term offers witnessed the most buying interest with a bid-to-cover ratio of 4.6x (N24.4bn offered vs. N106.9bn subscribed) and 4.4x (N23.2bn offered vs. N107.6bn subscribed) respectively, while the 364-day tenor had a bid-to-cover ratio of 3.1x (N103.1bn offered vs. N319.4bn subscribed). Expectedly, the stop rates further waned across the short, medium and long offers to 6.495%, 7.230% and 8.370% respectively.

 

Please see PMA results below:

Auction Date

27-Nov-19

27-Nov-19

27-Nov-19

Allotment / Issue Date

28-Nov-19

28-Nov-19

28-Nov-19

Tenor

(91-Day)

(182-Day)

(364-Day)

Offer Amount (N)

24,372,790,000

23,157,656,000

103,071,723,000

Subscription (N)

106,878,497,000

107,627,970,000

319,419,121,000

Allotment (N)

20,372,790,000

19,157,656,000

111,071,723,000

Range of Bid Rates (%):

6.0000 - 12.0000

6.7000 - 11.5000

7.7100 - 14.4000

Stop Rates (%):

6.495

7.23

8.37

Previous Stop Rates (%):

7.80

9.00

10.00

Bid-to-Cover Ratio:

4.4x

4.6x

3.1x

Allotment Ratio:

0.2x

0.2x

0.3x

 

On Thursday at the CBN's customary Open Market Operation ("OMO") mop-up attempt, there was strong demand from foreign investors and the banks, as a bid-to-cover ratio of 1.8x was recorded on its 355-day tenor (N150.0bn offered vs. N281.5bn subscribed) while tightening clearing rate for the long offer to 13.1% from its previous 13.3%.


Maturity

Tenor (Days)

Rate (%) p.a.

Yield (%) p.a.

2-Jan-20

31

6.65

6.69

30-Jan-20

59

6.75

6.82

2-Apr-20

122

7.95

8.17

13-Aug-20

255

8.70

9.26

24-Sep-20

297

9.00

9.71

29-Oct-20

332

9.40

10.28

Rates are valid till 01:45pm today (02-Dec-19)
*Please note that the minimum subscription for T-Bills is N100,000.00

 

Going into week, we expect to see significant activities on the buy side as investors seek to place funds amidst limited investment options as N45.0bn worth of maturing NT-Bills and N344.9bn OMO bills are scheduled to hit the financial system this week as well as unmet bids from last week's PMA. Despite the dampened N-TBills yields, we advise investors with short term investment horizon to invest in T-Bills due to its risk- and tax-free nature relative to other short-term investments. In addition, short term FGN Bonds (2-3 TTM) present a very good investment alternative to N-TBills.

 

FGN Bonds Market Update: Bullish Momentum Sustained as Investors Demand Drives Yield Southwards by 22bps W-o-W to 12.1%

Last week in the bonds market, trading began on a cautious note as investors anticipated the outcome of the MPC meeting which held on Monday and Tuesday where all parameters were maintained at their current levels. However, investors traded more actively in subsequent trading sessions, cherry-picking the most attractive yielding instruments with the 13-Feb-2020 (-191bps W-o-W) maturity enjoying the most demand. Consequently, average yield across all maturities dipped by 22bps to 12.1% from 12.3% the previous week.

 

Please see below FGN Bond Rates:

Bond

Tenor (Years)

Yield (%)

Coupon (%)

Implied Price (N)

Jul-21

2

9.70

14.50

107.77

Jan-22

3

9.80

16.39

113.49

Apr-23

4

11.10

12.75

105.98

Mar-24

5

10.80

14.20

113.19

Mar-25

6

10.80

13.53

112.92

Jan-26

7

11.15

12.50

108.15

Mar-27

8

11.30

16.29

127.17

Feb-28

9

11.75

13.98

114.35

Jul-34

15

11.90

12.15

105.24

Mar-36

17

11.95

12.40

106.90

Apr-37

18

11.90

16.25

136.30

Apr-49

30

12.57

14.80

121.86

Rates are valid till 01:45pm today (02-Dec-19)
*Please note that the minimum subscription for FGN Bonds is N20,000,000.00

 

Going into the week, we do not anticipate this bullish momentum to halt as investors continue to seek higher yielding instruments following the affirmation of the CBN's policy barring local players from participating in OMO instruments. In addition, we expect the DMO to offer an FGN Savings Bond auction this week, and thus advise investors to take advantage of maturities with the most attractive yields across the curve.

 

To indicate your interest and for further enquiries, kindly send an email to  brokerageteam@afrinvest.com.

 

Proshare Nigeria Pvt. Ltd.


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