Bullish Run Subsides as CBN Resumes OMO Auction; Average Yields Close at 12.2%

Proshare

Monday, May 27, 2019   / 12:17PM / By Afrinvest Research 

 

Last week, the Treasury Bills (“T-Bills”) secondary market performance was slightly bullish due to sustained demand for long-term bills, especially the 30-Jan-20 (-71bps) and 13-Feb-20 (-58bps) maturities. However, the resumption of Open Market Operations (“OMO”) by the CBN on Thursday (after two weeks), mopped up liquidity towards the end of the week, albeit with lower stop rates across tenors. Despite the OMO auction, average yield declined marginally by 15bps W-o-W to settle at 12.2% from the 12.3% in the previous week. 

After the Monetary Policy Meeting (“MPC”) meeting on Monday and Tuesday, the Committee opted to maintain status quo. Also, despite the CBN Governor’s hint at a possible policy which would limit Deposit Money Banks’ (“DMB”) access to Treasury Bills, the T-Bills secondary market remained stable. 

A total of N150.0bn  was offered at the OMO auction on Thursday, across the 91- (N20.0bn), 182- (N30.0bn) and 357- (N100.0bn) day tenors with a total bid-to-cover ratio of 2.5x. Particularly, the long term bill enjoyed the most demand with a bid-to-cover ratio of 3.0x while the medium term offer had a bid-to-cover ratio of 2.0x. However, the short-term offer was 0.8x undersubscribed. Interestingly, the Apex bank allotted a total of N360.7bn, 2.4x above its initial offer of N150.0bn in a bid to mop up the significant liquidity levels which stood at N255.6bn long as at Wednesday.

 

Please see below T-Bills indicative rates:

Maturity

Tenor (Days)

Rate (%) p.a.

Yield (%) p.a.

18-Jul-19

52

8.00

8.09

29-Aug-19

94

10.00

10.26

12-Sep-19

108

10.60

10.94

17-Oct-19

143

10.70

11.17

14-Nov-19

171

11.00

11.60

26-Dec-19

213

11.00

11.75

16-Jan-20

234

11.10

11.95

20-Feb-20

269

11.20

12.21

OMO Auction

c.100

10.00

10.28

OMO Auction

c.200

11.00

11.71

OMO Auction

c.300

11.30

12.46

Rates are valid till 01:45pm today (27-May-19)

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

 

This week, we expect  a further moderation in the bullish run due to expected Primary Market Auction (“PMA”) maturity worth N67.4bn which is scheduled to be rolled over  in the upcoming PMA slated for Thursday across the 91- (N24.4bn), 182- (N23.2bn) and 364- (N19.8bn) day tenors. Please see our PMA expectations below:

Auction Date

30-May-19

30-May-19

30-May-19

Allotment / Issue Date

31-May-19

31-May-19

31-May-19

Tenor

(91-Day)

(182-Day)

(364-Day)

Offer Amount (N)

24,372,790,000

23,157,656,000

19,842,352,000

Previous Stop Rates (%):

10.00

12.30

12.49

Expected Stop Rates Range (%):

10.20-10.50

11.50-12.20

12.00-12.30

 

Furthermore, we anticipate that the Apex Bank will continue to keep liquidity levels in check (N250.9bn short as at Friday). Thus, investors are advised to take advantage of the more attractive yields on the medium-dated maturities available in the secondary market.

Please see primary market commercial paper ("CP") rates for today below:

Type

Series No.

Maturity Date

Tenor (Days)

Rate (%)

Yield (%)

Offer Close Date

Mixta Real Estate Plc

Series 6

24-Nov-19

180

13.6803

14.6700

27-May-19

Mixta Real Estate Plc

Series 7

18-Feb-20

266

13.8137

15.3600

27-May-19

Flour Mills of Nigeria Plc

Series 8

22-Feb-20

270

11.9427

13.1000

28-May-19

*Please note that the minimum subscription for CP is N5,000,000.00

 

Bullish Performance in the Bonds Market as Average Yields Dip 4bps WoW

 

Last week, the FGN bonds market sustained its bullish performance, as average yield contracted marginally by 4bps W-o-W to 13.35% from 13.39% the prior week especially the 14-Jun-19 (-2.2%) and 29-Jun-19 (-1.4%). However, some selloffs were witnessed on select maturities along the yield curve as investors exited some positions ahead of the Bond auction which held on Wednesday.

 

Please see detailed result below:

Bonds

12.75% FGN APR 2023

NEW FGN APR 2029

NEW FGN APR 2049

Term-To-Maturity

3 Years, 11 months

9 Years, 10 months

29 Years, 10 months

Amount on Offer

35,000,000,000

35,000,000,000

30,000,000,000

Total Subscription (N)

45,977,000,000

124,220,000,000

100,914,000,000

Amount Allotted: (N)

27,375,000,000

35,000,000,000

48,930,000,000

Range of Bid Rates (%)

13.72% -15.30%

13.97% - 16.00%

13.80% - 14.98%

Stop Rates (%)

14.11

14.24

14.49

Previous Stop Rates (%)

13.5

13.5

13.5

Bid-to-Cover Ratio

1.3x

3.5x

3.4x

Allotment Ratio

0.6x

0.3x

0.5x

 

At the bond auction, the clearing rates significantly declined which led to more buying interest in the secondary market. However, we expect to see tapered demand within the bond market as investors may begin to take profit or take advantage of long-term OMO offerings despite the moderating yields. Thus, we advise investors to take advantage of the attractive yields at the short end of the curve, such as the 16-Aug-19 and 20-Sep-19 which appreciated 1.2% and 0.8% respectively as at Friday.

 

Please see below bond rates for today:

Bond

Tenor (Years)

Yield (%)

Coupon (%)

Implied Price (N)

Jul-21

2

13.95

14.50

100.94

Jan-22

3

13.90

16.39

105.34

Apr-23

4

14.05

12.75

96.15

Mar-24

5

13.90

14.20

100.97

Mar-25

6

14.00

13.53

98.12

Jan-26

7

14.25

12.50

92.58

Mar-27

8

14.15

16.29

92.03

Feb-28

9

14.13

13.98

99.20

Jul-34

15

14.28

12.15

86.88

Mar-36

17

14.23

12.40

88.37

Apr-37

18

14.18

16.25

113.29

Rates are valid till 01:45pm today (27-May-19)

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


Proshare Nigeria Pvt. Ltd.


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Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.

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