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Bullish Run Sustained on Buoyant System Liquidity as Average Yield Dips 3bps WoW to 12.39%

Bonds & Fixed Income	2212 VIEWS
Bonds & Fixed Income
2212 VIEWS

Monday, June 24, 2019 / 11:59AM / By Afrinvest Research

The bullish run recorded at the Treasury Bills (“T-Bills”) secondary market was sustained for a second consecutive week following sustained robust system liquidity (N207.3bn positive as at Monday). This was further supported by the absence of Open Market Operations (“OMO”) offer by the Central Bank of Nigeria (“CBN”) all through the week.

In line with the overall bullish sentiment, yields compressed further, albeit marginally by 3bps W-o-W to settle at 12.39% from 12.42% the previous week. Buying interests were witnessed at the shorter end of the curve particularly the 22-Aug-19 (-107bps) instrument.

However, ahead of the Primary Market Auction (“PMA”) on Wednesday, slight selloffs were recorded on the longer end of the curve - especially the 30-Apr-20 (+62bps) - as some investors exited positions in anticipation of the PMA which surprisingly held for a second consecutive week (a departure from the CBN’s customary bi-monthly auction schedule). The Apex Bank’s total offering of N17.6bn at the PMA was met with strong demand following its total subscription of N132.9bn (bid-to-cover ratio of 7.6x).

This strong demand was enjoyed across all tenors with the majority on the 364-day instrument recording a bid-to-cover ratio of 11.0x (N10.6bn offered vs. N117.2bn subscribed). Consequently, stop rates across all tenors moderated to 9.60%, 11.89% and 12.02% respectively.

Furthermore, the CBN maintained amount offered across the short, medium and long-tenors despite the significant demand which informed the buying interests that filtered into the secondary market throughout the rest of the week as investors sought to fill their lost bids in the secondary market in the absence of an OMO auction.

Please see below results of the PMA:

Auction Date	19-Jun-19	19-Jun-19	19-Jun-19
Allotment / Issue Date	20-Jun-19	20-Jun-19	20-Jun-19
Tenor	(91-Day)	(182-Day)	(364-Day)
Offer Amount (N)	3,000,000,000	4,000,000,000	10,614,105,000
Total Subscription (N)	3,270,000,000	12,528,101,000	117,197,858,000
Allotment (N)	3,000,000,000	4,000,000,000	10,614,105,000
Range of Bid Rates (%):	9.60 – 13.00	11.30 – 12.50	11.75 – 12.69
Stop Rates (%):	9.60	11.89	12.02
Previous Stop Rates (%):	10.00	11.95	12.20
Allotment Ratio:	0.9x	0.3x	0.1x
Bid-to-cover ratio	1.1x	3.1x	11.0x

In the absence of CBN’s OMO auctions, we expect to see sustained buying interests in the secondary market this week especially at the short- and medium-term bills on the back of buoyant system liquidity (N479.5bn long as at Friday) along with the N17.1bn worth of maturing OMO bills scheduled to hit the financial system. Thus, we advise investors to take advantage of the attractive yields on the long-term maturities and possible OMO offerings as we expect the CBN to resume its customary interventions.

Please see indicative secondary market T-Bills rates below:

Maturity	Tenor (Days)	Rate (%) p.a.	Yield (%) p.a.
5-Sep-19	73	9.00	9.16
3-Oct-19	101	10.50	10.81
7-Nov-19	136	10.60	11.04
5-Dec-19	164	10.80	11.35
16-Jan-20	206	11.25	12.01
20-Feb-20	241	11.40	12.33
OMO Auction	c.100	10.00	10.28
OMO Auction	c.200	11.00	11.71
OMO Auction	c.350	11.70	13.18

Rates are valid till 01:45pm today (24-Jun-19)
*Please note that the minimum subscription for T-Bills is N100,000.00

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Kindly fund your Afrinvest in-house account “instantly” right from your online banking platform through NIBBS E-Bills (Read FAQs). The banks currently enabled are GT Bank, First Bank, Stanbic IBTC, Wema Bank and Zenith Bank

For GT Bank users, please note that you can fund your account through your GT Bank Mobile Banking app or using the short-code below:
*737* 35 *amount*9054# (for example *737* 35 *25000* 9054#)

NOTE: Payment should ONLY be made to Afrinvest Securities Limited Client bank accounts

Buying Interests Persist into Second Consecutive Week as Average Yield Tighten by 11bps W-o-W

Last week, the bonds market sustained its bullish run into a second consecutive week as investors switched focus from the short-dated to long-dated. As a result, average yields dipped by 11bps to 13.7% from13.8% the prior week. In addition, the 12-Dec-21 (-52bps), 16-Jan-22 (-52bps) and 27-Jan-22 (-64bps) maturities enjoyed the most buying interests.

Going into the week, we expect that this bullish trend will be tapered within the secondary market as we anticipate that both local and offshore players will participate at the upcoming Bond Auction slated for Wednesday where the Debt Management Office (“DMO”) is expected to offer a total of N100.0bn across the 5-, 10- and 30-year maturities.

Please see below details of the Bond Auction:

BOND	12.75% FGN APR 2023	14.55% FGN APR 2029	14.8% FGN APR 2049
BOND	(Re-opening)	(Re-opening)	(Re-opening)
Term-To-Maturity	3 Years, 10 months	9 Years, 10 months	29 Years, 10 months
Amount on Offer	N30.0bn	N40.bn	N30.0bn
Original Tenor	5-Year	10-Year	30-Year

We therefore advise investors to take advantage of the attractive yields on the short-dated maturities.

Please see indicative FGN bond rates below:

Bond	Tenor (Years)	Yield (%)	Coupon (%)	Implied Price (N)
Jul-21	2	14.00	14.50	100.84
Jan-22	3	13.95	16.39	105.12
Apr-23	4	14.28	12.75	95.55
Mar-24	5	14.10	14.20	100.28
Mar-25	6	14.29	13.53	97.03
Jan-26	7	14.55	12.50	91.47
Mar-27	8	14.40	16.29	108.57
Feb-28	9	14.46	13.98	97.62
Jul-34	15	14.50	12.15	85.73
Mar-36	17	14.55	12.40	86.58
Apr-37	18	14.50	16.25	111.01