Average Yield Contracts to 13.1% Amidst Buying Interests; PMA Holds on Thursday

Monday, April 29 2019 / 01:30 PM / by Afrinvest Research

The Treasury bills ("T-Bills") secondary market last week sustained its bullish run for the fourth consecutive week as improved system liquidity fueled buying interests by investors. The upbeat in system liquidity stemmed from matured OMO bills on Thursday (N46.3bn). Consequently, system liquidity closed at c. N464.7bn on Friday due to the absence of OMO auction.

As a result, average yields across tenors dipped 10bps W-o-W to settle at 13.1% on Friday. The short-term maturities declined the most by 36bps while the medium and long-term instruments shed 24bps and 9bp W-o-W respectively. However, major buying interests were recorded on the 30-May-19 (-94bps), 1-Aug-19 (-69ps) and 19-Dec-19 (-45bps) maturities.

In line with our expectation, the CBN resumed its customary OMO auctions on Tuesday offering a total of N200.00bn across the 93-day, 184-day and 359- day tenors. While the short- and medium-term instruments were undersubscribed with a bid to cover ratio of 0.2x and 0.03x respectively, the 359-day instrument had an oversubscription of 2.8x signaling continued investors preference for long term instruments.

Going into the week, the Apex Bank is expected to conduct a Primary market auction("PMA") on Thursday, due to the public holiday on Wednesday, where a total of N109.7bn worth of maturing T-Bills will be rolled over across the 91(N28.0bn), 182 (N43.5bn) and 364-day (N38.2bn) tenors.

Please see details of this week Primary Market Auction below:

Furthermore, we expect more frequent OMO mop-ups by the Apex bank to persist this week as T-Bills (N109.7bn) and OMO maturities (N73.3bn) worth N172.5bn as well as FAAC inflows of (c. N350.0bn) are scheduled to hit the system, thereby bolstering system liquidity. Investors are therefore advised to take advantage of bills with attractive yields especially at the longer end of the curve.

Please see below T-Bills indicative rates for today:

FGN Bonds Update: Average Yield Across Instruments Inch Higher W-o-W following Sell-offs across tenors

In the bonds market last week, performance was relatively bearish as investors sold off their positions ahead of the primary market bond auction which held on Wednesday. Consequently, average yields advanced 18bps W-o-W to settle at 14.2%. Major selloffs were recorded on the medium end of the yield curve, particularly the 27-Jan-22 (-81bps), 13-Mar-22 (-62bps) and 13-Feb-22 (-56bps) maturities.

At the primary market auction last Wednesday, the Debt Management Office (“DMO”) offered a total of N100bn across the 12.75 APR 2023 (re-opening), new Benchmark 10-year and 30-year bonds. The auction results showed a sustained trend in investors preference for longer term bonds as the newly issued 10-year and 30-year bonds were oversubscribed by 1.3x and 4.0x respectively. Conversely, the 2023 instrument (re-opened) was undersubscribed with a bid-to-cover ratio of 0.4x.

In addition, the DMO reviewed the stop rates for three tenors higher in tandem with secondary market rates, with the new benchmark 10 and 30-year bonds offered at 14.55% and14.80% respectively.

Please see below a summary of the Bond auction result

Going into the week, we expect the bond market to open on a positive note as investors continue to take advantage of attractive yields on the longer end of the curve. Nevertheless, we advise investors to trade cautiously and take advantage of bonds trading at attractive yields and at discounts.

Please see indicative FGN bond rates below:

Rates are valid till 01:45pm today (29-Apr-2019)

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

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