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Average Yield Dips Marginally to 4.0% WoW Buoyed by Improved System Liquidity

Bonds & Fixed Income	1037 VIEWS
Bonds & Fixed Income
1037 VIEWS

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Monday, March 09, 2020 / 12:43 PM / Afrinvest Research / Header Image Credit: MissyBanker

Last week, performance in the Nigerian Treasury Bills ("NT-Bills") market was mixed albeit slightly bullish as average yield across all tenors shed 1bp to close at 4.0% on Friday. The week started off on a bearish note as investors traded cautiously amidst the COVID-19 breakout fears with sell offs witnessed on the short and medium term maturities. However, activities picked up on Thursday following improved system liquidity from matured OMO instruments. Medium-term maturities particularly the 16-Jul-20 (+154bps) and 30-Jul-20 (+126bps) witnessed the most sell-offs while investors demand intensified on the longer-end of the curve especially the 14-Jan-21 (-109bps) and 26-Nov-20 (-84bps) instruments.

OMO maturities worth N232.3bn hit the system on Thursday and the Apex Bank conducted an auction on the same day, offering a total of N100.0bn across three tenors. While there was no sale on the short and medium term instruments, the 362-day tenor was 1.4x oversubscribed (N80.0bn offer vs. N112.1bn subscription). Consequently, the CBN sold a total of N110.5bn with the marginal rate contracting by 1bp to 12.99%.

We anticipate the release of the second quarter Nigerian T-Bills issue programme by the Apex bank in the current week. A total of N86.3bn worth of Treasury Bills is expected to mature on Thursday and we expect the CBN to roll this over.

Please see indicative secondary market NT-Bills rates below:

Maturity	Tenor (Days)	Rate (%) p.a.	Yield (%) p.a.
30-Apr-20	52	2.10	2.11
18-Jun-20	101	2.80	2.82
13-Aug-20	157	3.60	3.66
29-Oct-20	234	4.00	4.11
14-Jan-21	311	4.50	4.68

Rates are valid till 01:45pm today (09-Mar-20)

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

Going into the week, we expect to see an improvement in system liquidity improves due to matured OMO and T-Bills maturities (c. N141.0bn). However, the drastic drop in oil prices to about $35.0 per barrel coupled with the second confirmed case of COVID-19 in Nigeria will likely spook investors and cause further selloffs. Thus, we advise investors to trade cautiously while taking advantage of attractive opportunities along the yield curve, as well as expected CP offers.

FGN Bonds Market Update: Sell Pressures Dominate Activity as COVID-19 Fears Mount; Average Yield Advances 103bps W-o-W to 10.3%

Last week, performance in the domestic bonds market was bearish following sell-offs particularly by offshore investors on the back of the COVID-19 and weaker oil price fears. As a result, average yield on all instruments appreciated, save for the short-term 15-Jul-21 (-37bps) instrument which enjoyed buying interests. By Friday, average yield across all tenors inched 103bps higher to close at 10.3%.

Although the 23-Mar-25, 14-Mar-24 and 27-Apr-24 instruments enjoyed the most buying interest two weeks ago, these instruments witnessed the most sell offs in last weekâ€™s trading session with yields rising by 324bps, 267bps and 178bps respectively.

This week, we expect to see bargain hunting activities particularly on attractive short term bonds with 3-5 years TTM on the back of the sell-offs witnessed last week. Investors are advised to trade cautiously and cherry pick bonds with attractive yields and lower prices.

Please see indicative secondary market bond rates below:

Bond	Tenor (Years)	Yield (%)	Coupon (%)	Implied Price (N)
Jul-21	2	5.90	14.50	111.00
Jan-22	3	5.90	16.39	118.44
Apr-23	4	8.90	12.75	110.30
Mar-24	5	9.40	14.20	115.75
Mar-25	6	7.40	13.53	125.39
Jan-26	7	9.80	12.50	111.81
Mar-27	8	10.20	16.29	130.00
Feb-28	9	10.50	13.98	118.45
Jul-34	15	10.50	12.15	112.06
Mar-36	17	10.50	12.40	114.58
Apr-37	18	10.30	16.25	147.37
Apr-49	30	11.90	14.80	123.49