Sustained Demand for NT-Bills Suppresses Average Yield Further to 4.2%, Down 43bps WoW

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Monday, January 13,  2020 /01:22 PM / By Afrinvest Research / Header Image Credit: The Sun Nigeria

 

The Nigerian Treasury Bills ("NT-Bills") secondary market performance remained bullish last week, driven by sustained buoyant liquidity levels (N50.7bn positive) at the start of the week. Consequently, average yield across tenors retreated 43bps W-o-W to 4.2% from 4.6% the previous week, indicating a slowed pace in the bullish momentum. Particularly, the 02-Apr-20 and 16-Apr-20 bills garnered the most buying interest from investors shedding 164bps and 140bps W-o-W respectively.

 

On Thursday, the Central Bank of Nigerian ("CBN") conducted its customary mop-up exercise (as N423.2bn worth of maturing OMO bills hit the system), offering a total of N320.0bn across the 89-day and 362-day tenors. The long-term offer witnessed the most demand with a bid-to-cover ratio of 1.4x (N300.0bn offered vs. N411.0bn subscribed) while the short-dated offer had a bid-to-cover ratio of 0.01x (N20.0bn offered vs. N100.0m subscribed).

 

This week, the Apex Bank is scheduled to issue a total of N225.4bn across the 91-day (N5.8bn), 182-day (N26.6bn) and 364-day (N193.0bn) tenors at a Primary Market Auction ("PMA") on Wednesday.

 

Please see below our PMA expectations:

Tenor

91-Day

182-Day

364-Day

Offer Amount (N'000)

5,849,034

26,600,000

193,000,000

Last Stop Rate (%)

3.5

4.9

5.2

Expected Stop Rate Range (%)

3.0 - 3.3

4.7-4.9

4.8.0-5.0

 

We also anticipate that the CBN will continue the customary liquidity mop-up via OMO auction as N152.0bn worth of maturing T-Bills is scheduled to hit the financial system. Thus, we expect to see a continued slowdown in the bullish momentum in the NT-Bills secondary market given the liquidity levels (N59.7bn in the negative as at Friday), as investors continue to seek higher yielding instruments given the single-digit yields.

 

Therefore, we advise risk-averse investors to cherry pick from long term bills that remain relatively attractive.

 

Please see below T-Bills rates:

Maturity

Tenor (Days)

Rate (%) p.a.

Yield (%) p.a.

27-Feb-20

45

3.70

3.72

14-May-20

122

5.00

5.08

13-Aug-20

213

5.20

5.36

24-Sep-20

255

5.30

5.50

29-Oct-20

290

5.50

5.75

 

FGN Bonds Update: Continued Bullish Streak as Average Yields Decline 29bps WoW to 10.4%

 

Similarly, the FGN bonds secondary market maintained its bullish streak as the low-yielding NT-Bills market continues to fuel demand from local players. As a result, average yield across the curve shed 29bps W-o-W to 10.4% from 10.7% the previous week as, the 2036s and 2037s witnessed the most demand, declining 64bps and 60bps W-o-W respectively.

 

Inflow from coupon payments worth c. N106.1bn should hit the financial system later in the week which we expect to drive demand in the domestic bond market as risk averse local investors seek higher yielding alternatives to NT-Bills. Therefore, we advise investors to take advantage of the more attractive yields at the mid and long-end of the curve.

 

Please see below FGN bond indicative rates:

Bond

Tenor (Years)

Yield (%)

Coupon (%)

Implied Price (N)

Jul-21

2

7.60

14.50

109.62

Jan-22

3

7.90

16.39

115.66

Apr-23

4

9.40

12.75

109.25

Mar-24

5

9.10

14.20

117.33

Mar-25

6

9.35

13.53

116.85

Jan-26

7

10.55

12.50

108.52

Mar-27

8

10.65

16.29

127.75

Feb-28

9

10.85

13.98

116.57

Jul-34

15

11.10

12.15

107.48

Mar-36

17

11.12

12.40

109.47

Apr-37

18

10.86

16.25

141.58

Apr-49

30

12.30

14.80

119.65



Proshare Nigeria Pvt. Ltd.

 

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