The Bulls Re-emerge as Average Yield Dips 1.2% WoW

Proshare

Monday, June 22, 2020 / 01:38 PM / By Afrinvest Research / Header Image Credit: Global Financial Data


Proshare Nigeria Pvt. Ltd.


The 2-week bearish streak in the NT-Bills secondary market came to a halt last week following renewed buying interests as a result of a robust system liquidity (c.N600.0bn long as at Thursday) due to inflows from OMO maturities, disbursements from the Federation Accounts Allocation Committee ("FAAC") as well as investors seeking to fill lost bids (c. N74.4bn) from the Primary Market Auction ("PMA"). Consequently, average yield across all tenors dipped 1.2% to close at 2.2% on Friday. The short and medium term instruments shed 2.0% and 1.0% respectively while average yield on the long-term bills closed flat. The 27-Aug-20 (-311bps), 10-Sep-20 (-258bps) and 17-Sep-20 (-231bps) instruments had the most buying interests.

 

At the PMA on Wednesday, the Apex bank offered a total of N14.6bn across the 91- (N2.0bn), 182-(N2.0bn) and 364-day (N10.6bn) tenors respectively. Similar to the previous week's auction, the bid-to-cover ratios on the medium and short-term tenors were higher at 7.6x and 6.8x respectively while the long-term bill had a bid-to-cover ratio of 5.7x. Subsequently, the Apex bank allotted the total amount offered (N14.6bn) across the 3 tenors, despite a combined demand of N89.0bn. Rates on the 91, 182 and 364 day tenors declined by 0.20%, 0.16% and 0.27% respectively.

 

Please see details of the PMA result below: 

Auction Date

17-Jun-20

17-Jun-20

17-Jun-20

Allotment / Issue Date

18-Jun-20

18-Jun-20

18-Jun-20

Tenor

(91-Day)

(182-Day)

(364-Day)

Offer Amount (N)

2,000,000,000

2,000,000,000

10,614,105,000

Subscription (N)

13,590,663,000

15,234,969,000

60,182,687,000

Allotment (N)

2,000,000,000

2,000,000,000

10,614,105,000

Range of Bid Rates (%):

1.7000 - 7.0000

1.9500 - 7.0000

3.5000 - 9.0000

Stop Rates (%):

1.8000

2.0400

3.7460

Previous Stop Rates (%):

2.0000

2.2000

4.0200

Bid-to-Cover Ratio:

6.8x

7.6x

5.7x

Allotment Ratio

0.1x

0.1x

0.2x

 

The CBN also conducted an Open Market Operation ("OMO") on Thursday offering a total of N80.0bn across the 89, 180 and 348-day tenors. As expected, strong demand was witnessed across the short (Offer: N10.0bn vs. Subscription: N20.0bn), medium (Offer: N10.0bn vs. Subscription: N24.0bn) and long term (Offer: N60.0bnvs. Subscription: N123.5bn) bills. The Apex bank allotted a total of N80.0bn despite a subscription of N167.5bn, with stop rates unchanged at 5.0%, 7.8% and 9.0%.

 

We expect to see quiet trading sessions in the coming week due to a tightened system liquidity.  Thus, we expect yields to expand and maintain that investors take advantage of the relatively more attractive bills along the curve while also remaining alert for possible commercial paper offers.

 

Please see indicative secondary market NT-Bills rates below:

Maturity

Tenor (Days)

Rate (%) p.a.

Yield (%) p.a.

30-Jul-20

38

2.55

2.56

27-Aug-20

66

3.30

3.32

24-Sep-20

94

3.90

3.94

26-Nov-20

157

4.48

4.57

11-Feb-21

234

4.80

4.95

Rates are valid till 01:45pm today (22-June-2020)

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

 

FGN Bonds Update: Strong Demand Witnessed in Secondary Market as Average Yield Dips by 0.7% W-o-W; Bond Auction Result

In a similar vein, the FGN bond secondary market reversed its bearish momentum last week following strong demand particularly from investors with unfilled bids (c. N506.1bn) at the Sukuk bond auction that held the previous week. Consequently, average yield across the curve dipped by 0.7% to close at 9.4% on Friday. The APR-29, NOV-28 and FEB-28 bonds were the most sought after shedding 135bps, 131bps and 124bps respectively.

 

At the Bond Primary Market Auction on Wednesday, the Debt Management Office ("DMO") offered a total of N150.0bn across the APR-23 (N40.0bn), MAR-35 (N50.0bn) and MAR-50 (N60.0bn) instruments. The result indicates investors' preference to lock in longer maturity with bid-to-cover ratios of 3.4x, 2.5x and 4.7x across the short, medium and long-term maturities. Consequently, the DMO raised a total of N100.0bn (67.0% of its offer) with stop rates closing lower at 8.00%, 11.00% and 12.15% respectively.

 

Please see a summary of the auction outcome below: 

Bonds

12.75% FGN APR 2023 
(Re-opening)

12.50% FGN MAR 2035 
(Re-opening)

12.98% FGN MAR 2050 
(Re-opening)

Auction Date

17-Jun-20

17-Jun-20

17-Jun-20

Allotment / Issue Date

19-Jun-20

19-Jun-20

19-Jun-20

Term to maturity

2 years, 10 months

14 years, 9 months

29 years, 9 months

Offer Amount (N)

40,000,000,000.00

50,000,000,000.00

60,000,000,000.00

Total Subscription (N)

137,650,000,000.00

123,560,000,000.00

283,950,000,000.00

Allotment (N)

32,990,000,000.00

16,220,000,000.00

50,790,000,000.00

Range of Bid Rates (%)

7.9000 - 12.5000

10.0000 - 13.3500

11.5400 - 13.1600

Stop rates (%)

8.20000

11.0000

12.1500

Previous stop rates (%)

9.2000

11.7000

12.6000

Bid-to-Cover Ratio

3.4x

2.5x

4.7x

Allotment Ratio

0.2x

0.1x

0.2x

 

Going into the week, we anticipate some activities in the secondary market due to unfilled bids (N445.2bn) from last week's PMA. Our recommendation is for investors to cherry pick bonds with attractive yields across the ccurve.

 

Please see indicative FGN bond rates below:

Bond

Tenor (Years)

Yield (%)

Coupon (%)

Implied Price

Jul-21

1

3.60

14.50

111.28

Jan-22

2

3.70

16.39

119.50

Apr-23

3

6.25

12.75

116.69

Mar-24

4

6.65

14.20

124.53

Mar-25

5

6.45

13.53

128.55

Jan-26

6

7.45

12.50

122.71

Mar-27

7

8.60

16.29

138.65

Feb-28

8

8.50

13.98

130.39

Apr-29

9

8.70

14.55

135.55

Jul-34

14

9.60

12.15

119.44

Mar-36

16

9.60

12.40

122.46

Apr-37

17

9.70

16.25

153.76

Apr-49

29

10.80

14.80

135.21

 

Rates are valid till 01:45pm today (22-June-2020)

*Please note that the minimum subscription for T-Bills is N20,000,000.00

 

Proshare Nigeria Pvt. Ltd.


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