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The Bulls Take Centre Stage as Average Yield Declines 6bps WoW to 13.3%

Bonds & Fixed Income	817 VIEWS
Bonds & Fixed Income
817 VIEWS

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Monday, October 30, 2019 / 01:30 PM / By Afrinvest Research / Header Image Credit: brecorder

Last week, the four-day trading session resumed in the secondary market on a quiet note as Treasury Bills ("T-Bills") market players anticipated the Primary Market Auction ("PMA") slated for Wednesday. However, investors demand picked up steam on Thursday due to unfilled bids at the PMA as the medium and long-term instruments enjoyed the most buying interest declining by 0.2% W-o-W especially the 02-Apr-20 (-89bps), 09-Apr-20 (-51bps) and 20-Aug-20 (-41bps) bills. Consequently, average yield across tenors contracted by 6bps W-o-W to 13.25% from 13.31% the previous week.

At the PMA on Wednesday, the Central Bank's total offer of N134.0bn across the 91-, 182- and 364-day tenors was met with high demand with a bid-to-cover ratio of 2.5x (a subscription of N338.2bn). The most demand was witnessed at the long-end of the curve, recording a bid-to-cover ratio of 2.5x (N106.4bn offered vs. N308.2bn subscribed) while the short and medium offers witnessed tepid demand from investors with a 1.0x and 1.1x bid-to-cover ratio respectively.

Furthermore, the CBN tightened stop rates marginally across all tenors to 11.08%, 11.6% and 13.2% respectively.

Please see below details of the PMA:

Auction Date	02-Oct-19	02-Oct-19	02-Oct-19
Allotment / Issue Date	03-Oct-19	03-Oct-19	03-Oct-19
Tenor	(91-Day)	(182-Day)	(364-Day)
Offer Amount (N)	10,000,000,000	17,600,581,000	106,370,499,000
Total Subscription (N)	10,390,195,000	19,591,836,000	308,196,553,000
Allotment (N)	10,000,000,000	17,600,581,000	106,370,499,000
Range of Bid Rates (%):	10.90 - 17.00	11.30 - 15.00	12.90 - 15.10
Stop Rates (%):	11.08	11.60	13.20
Previous Stop Rates (%):	11.10	11.80	13.30
Bid-to-Cover Ratio:	1.0x	1.1x	2.9x
Allotment Ratio	0.9x	0.9x	0.3x

On Thursday, the Apex Bank conducted a belated OMO auction where it offered a total of N190.0bn across the 98-, 175- and 364-day tenors which was met with low demand on the short term offer with a bid-to-cover ratio of 0.05x (N20.0bn offered vs N0.9bn subscribed) while the long term offer had significant demand recording a bid-to-cover ratio of 3.6x (N120.0bn offered vs N436.89bn subscribed). Interestingly, there was no demand recorded on the medium term offer as the N50.0bn offered by the Central Bank was unsubscribed due to more attractive rates for similar maturities in the secondary market.

Please see indicative T-Bills rates below:

Maturity	Tenor (Days)	Rate (%) p.a.	Yield (%) p.a.
7-Nov-19	31	10.05	10.14
19-Dec-19	73	10.55	10.78
23-Jan-20	108	11.10	11.48
13-Feb-20	129	11.26	11.73
23-Apr-20	199	11.46	12.22
27-Aug-20	325	12.36	13.89
OMO Auction	c.100	10.64	10.96
OMO Auction	c.200	11.20	11.93
OMO Auction	c.350	12.90	14.49

Rates are valid till 01:45pm today (07-Oct-19)

*Please note that the minimum subscription for T-Bills is N1,000,000.00

Going into the week, we expect that the high system liquidity (N206.2bn in the positive as at Friday) as well as the unmet bids at the PMA and N443.5bn worth of OMO maturities will support significant demand from investors within the secondary market. Thus, we anticipate that the CBN will ramp up its customary interventions and advice investors to take advantage of attractive rates on the shorter end of the curve in the secondary market.

FGN Bonds Market Update: Bullish Trend Resumes as Average Yield Dips 2bps W-o-W

In the Bonds market, there was a reversal of the bearish trend witnessed in the previous week as demand from investors re-emerged in the secondary market. As a result, average yield across tenors dipped marginally by 2bps W-o-W to 14.17% from 14.19% recorded in the previous week. Particularly, the 22-Jan-26 and 17-Mar-27 maturities enjoyed the most demand, declining 0.2% apiece.

Please see indicative FGN bond rates below:

Bond	Tenor (Years)	Yield (%)	Coupon (%)	Implied Price (N)
Jul-21	2	13.80	14.50	101.47
Jan-22	3	14.05	16.39	105.10
Apr-23	4	14.15	12.75	95.83
Mar-24	5	13.95	14.20	101.53
Mar-25	6	13.85	13.53	98.01
Jan-26	7	14.12	12.50	93.42
Mar-27	8	14.10	16.29	109.96
Feb-28	9	14.12	13.98	98.90
Jul-34	15	14.38	12.15	86.48
Mar-36	17	14.40	12.40	88.06
Apr-37	18	14.40	16.25	112.41
Apr-49	30	14.50	14.80	101.39

Rates are valid till 01:45pm today (07-Oct-19)

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

This week, we expect to see a furtherance of this bullish momentum as investors take position on attractive maturities across the curve. Therefore, we advise investors to take advantage of the higher yields on the mid-dated maturities.