Average T-Bills Rate Settled at 12.7% as PMA Holds on Wednesday

October 15, 2018 BusinessTrumpet

Last week, trading on the Treasury Bills (“ T-Bills ”) secondary market was flattish as rates dipped marginally by 1bp W-o-W to close at approximately 12.7%. Buying interest was observed in short and medium-term bills both declining 6bps and 3bps W-o-W respectively. On the flip-side, long term bills all advanced 29bps W-o-W on the back of sell-offs by investors, ahead of Open Market Operations (“OMO”) auction on Thursday.

At the OMO auction, there was no sale on the 91-Day OMO bill due to more attractive options in the secondary market. However, the 182-Day and 350-Day bills recorded bid to cover ratios of 0.3x and 1.4x respectively which depicts investors interest in high yield long-term instruments despite pre-election jitters. Thus, a total of N249.1bn was mopped up in this offer leaving liquidity levels at N144.9bn positive at the close of the week.

This week, the CBN is set to conduct its third Primary Market Auction (“PMA”) of this quarter torollover maturing bills worth N147.6bn. Please see below details in the calendar as well as our expected stop rates range:

Tenor	91-Day	182-day	364-Day
Amount on Offer	N5.8bn	N29.2bn	N112.5bn
Last Stop Rate	10.9000%	12.0980%	13.3300%
Expected Stop Rate	11.00%-11.15%	12.00%-12.50%	13.30%-13.40%

Despite expected inflows totaling N494.8bn into the financial system from T-Bills and OMO maturities of N147.6bn and N347.1bn respectively, we expect liquidity to stay around current levels due to the PMA auction and possible OMO auction this week. We anticipate sustained interest in longer term bills on attractive yields as investors target the 364-day bill at the PMA and longer tenor (over 300 days) at the expected OMO auction this week.

Please see indicative T-Bills rates for today below:

Maturity	Tenor (Days)	Rate (%) p.a.	Yield (%) p.a.
15-Nov-18	31	10.80	10.90
22-Nov-18	38	11.80	11.95
03-Jan-19	80	11.40	11.69
14-Feb-19	122	11.51	11.97
19-Sep-19	339	12.55	14.21
OMO Auction	c.200	11.50	12.27
OMO Auction	c.300	12.20	13.68

*Please note rates are valid till 1:45pm today (15-Oct-18)

*Minimum amount for T-Bills is N100,000

FGN Bonds Market Update: Quiet Trading as Bearish Sentiment Persists due to Continued Sell-Offs

The local bond market was relatively quiet last week with continued weak sentiment as investors cautiously await the next bond auction scheduled for next week. Accordingly, average yields on benchmark FGN Bonds advanced 6bps to close at 14.8% W-o-W.

Going into the week, we expect the quiet trading to persist as investors anticipate the next auction as well as cautiously anticipate inflation numbers. We advise investors to seek opportunities in discount bonds (bonds trading below par value of N100.0) and attractive yields like the FEB 2020 which advanced the most up 30bps W-o-W to 14.06% followed by the FEB 2028 which advanced 15bps W-o-W to 15.25%.

Please see below indicative Bonds rates for today:

Bond	Tenor (Years)	Yield (%)	Coupon (%)	Implied Price (N)
Feb-20	2	13.57	15.54	102.26
Jul-21	3	14.40	14.50	100.16
Jan-22	4	13.75	16.39	106.72
Mar-24	6	14.80	14.20	97.78
Jan-26	8	14.80	12.50	89.91
Mar-27	9	15.00	16.29	106.02
Jul-34	16	14.80	12.15	83.93
Mar-36	18	14.90	12.40	84.56
Apr-37	19	14.80	16.25	109.10