Elevated Liquidity Levels Pressure Rates Lower as PMA Holds on Wednesday

Proshare

Monday, November 26, 2018 02:17 PM / Afrinvest Research

 

In the Treasury bills (“T-Bills”) market last week, activities remained quiet with bullish bias as heightened liquidity levels pressured rates lower while investors sustained their demand for short-term instruments ahead of Primary Market Auction (“PMA”) this week. 

Consequently, average rate across tenors dipped 9bps to settle at 13.1% W-o-W. Across tenors, short-term and long-term bills received investors’ buying interest with instruments like 6-Dec-18 (-0.8%), 27-Dec-18 (-0.9%), 18-Jul-19 (-1.1%) and 12-Sep-19 (-0.6%) enjoying the most buying interests. Thus, average rate on short term and long-term instruments declined 0.1% and 0.2% respectively. Within the week under review, offshore investors sell-offs on mid-term instruments in Wednesday’s trading session outweighed buying interests recorded on Monday and Thursday. Thus, average rate on these instruments inched up 1bp driven by sell pressures in 21-Mar-19 (+0.5%) and 18-Apr-19 (+0.3%) instruments. 

The Apex bank in line with its liquidity control objectives conducted an Open Market Operation (“OMO”) auction last week where it offered a total of N450.0bn spread across 3 tenors – 105 days (N50.0bn), 182 days (N150.0bn), and 350 days (N250.0bn). The offer received tepid interest with investors bidding for N225.1bn translating to a bid-cover ratio of 0.5x, lowest in 3 weeks. 

In related news, the Monetary Policy Committee (“MPC”) met during the week where all the 11 members at the meeting unanimously voted to hold the Monetary Policy Rate (“MPR”) at 14.0% as focus turned to growth and cost of borrowing. However, despite the CBN’s renewed focus on cost of borrowing, T-Bills rates are expected to remain elevated in a bid to reduce capital outflows which rose to higher levels in Q3:2018 (US$17.8bn). 

During the week, the CBN will be conducting a Primary Market Auction (“PMA”) to rollover maturing bills worth N150.6bn. The Apex bank will be offering N22.7bn, N24.8bn and N103.1bn respectively across the 91-day, 182-day and 364-day tenors. See below details of the upcoming auction and our expected stop rates range:

Tenor

91-Day

182-Day

364-Day

Offer Amount

22,727,507,000

 24,802,939,000

 103,071,723,000

Last Stop Rate

10.95%

13.16%

14.45%

Expected Stop Rate Range

11.0%-11.50%

13.2%-13.50%

14.50%-14.70%

 

In the secondary market this week, we anticipate further quiet trading sessions with bullish bias ahead of PMA as investors hold on for the PMA as well as expected increased OMO auctions as liquidity levels remain elevated at N621.8bn long while FAAC Inflow, OMO maturity of N443.8bn and Bond coupon payment of Nxxbn is expected to hit the system on Thursday.

 

Please see below indicative rates for today:

Maturity

Tenor (Days)

Rate (%) p.a.

Yield (%) p.a.

17-Jan-19

52

10.20

10.35

07-Feb-19

73

10.90

11.14

28-Feb-19

94

11.30

11.64

14-Mar-19

108

11.60

12.01

02-May-19

157

11.70

12.32

12-Sep-19

290

13.65

15.31

17-Oct-19

325

13.66

15.55

OMO Auction

c.200

12.50

13.42

OMO Auction

c.350

14.00

16.17

 

FGN Bonds Market Update: Buying Interests Halts Bearish Run as Average Yield Inches Lower by 13bps.

Last week, the bonds market followed recent rhetoric, as activities remained relatively quiet at the start of the week as investors anticipated the results of the Bond auction as well as the MPC meeting. However, the decision of the MPC to hold its policy rate at 14.0% sparked some buying interest on the long end of the curve as investors who sold off in anticipation of a rate hike began to reposition in the bonds market. Consequently, average yield on bond instruments declined 13bps to settle at 15.1% W-o-W. 

The Debt Management Office (“DMO”) conducted a bond auction last week offering a total of N115.0bn across the 5-Year, 7-Year and 10-Year maturities. The offer was met with warm interest from investors as the offer received subscription of N102.7bn (Bid-Cover ratio of 0.9x) albeit higher bid rates while the DMO sold N39.5bn unwilling to elevate the federal government’s cost of borrowing. Notably, marginal rates across all issued instruments increased from the last auction – Apr-2023 (15.00% vs 15.20%), Mar-2025 (15.15% vs 15.50%), and Feb-2028 (15.32% vs 15.83%).

 

Please find below more details on the bond auction results:

Bond

12.75% FGN APR 2023

13.53% FGN MAR 2025

13.98% FGN FEB 2028

Auction Date

21-Nov-18

21-Nov-18

21-Nov-18

Settlement Date

23-Nov-18

23-Nov-18

23-Nov-18

Maturity Date

27-Apr-23

23-Mar-25

23-Nov-28

Tenors

5-Year

7-Year

10-Year

Amount Offered

35,000,000,000

35,000,000,000

45,000,000,000

Subscription

3,800,000,000

18,670,000,000

80,230,000,000

Amount Allotted

1,100,000,000

4,270,000,000

34,150,000,000

Range of Bids

15.0000%-15.7500%

13.0000%-16.5000%

13.0000%-16.6999%

Marginal Rates

15.2000%

15.5000%

15.8300%

Bid-Cover Ratio

0.1x

0.5x

1.8x

Allotment Ratio

0.0x

0.1x

0.8x

 

This week, we expect continued buying interest particularly on the long end of the curve as investors continue to reposition. However, we note the lower pricing of benchmark bonds at the last auction as a downside risk to a bullish performance.

 

Please see below indicative bond rates for today:

Bond

Tenor (Years)

Yield (%)

Coupon (%)

Implied Price (N)

Feb-20

2

           14.10

            15.54

                  101.49

Jul-21

3

           15.25

            14.50

                    98.37

Jan-22

4

           14.40

            16.39

                  104.86

Mar-24

6

           15.00

            14.20

                    97.08

Jan-26

8

           15.50

            12.50

                    87.25

Mar-27

9

           15.60

            16.29

                  103.08

Feb-28  

10

           15.79

            13.98

                    92.03

Jul-34

16

           15.54

            12.15

                    80.24

Mar-36

18

           15.38

            12.40

                    82.06

Apr-37

19

           15.40

            16.25

                  105.11


Proshare Nigeria Pvt. Ltd.

 

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