Buoyant Liquidity Level Spurs Buying Interest as Average Yield Compresses to 13.2% W-o-W

The Treasury bills (’’T-Bills’’) secondary market sustained its bullish run last week on the back of the buoyant system liquidity – N680.0bn long as at Thursday largely due to OMO and T-Bills maturities (N445.5bn) as well as FAAC allocations (N310.0bn). As a result, average rate across all tenors shed 15bps W-o-W to close at 13.2% on Friday. Yields on the shorter end of the curve particularly the 21-Feb-19 (-147bps) and 28-Feb-19 (-249bps) maturities declined significantly following substantial demand by investors, similarly, yields compressed at the medium and long-end of the curve – 20-Jun-19 (-91bps) and 12-Dec-19 (-22bps).

The CBN conducted OMO auctions on 3 trading sessions offering a total of N850.0bn (including a N50.0bn special OMO sale on Thursday) which met a total subscription of N585.2bn. Interestingly, the short-term maturity had a bid-to-cover ratio of 1.1x following an over-subscription at Thursday’s auction (N50.0bn offer vs. N83.0bn subscription) due to its more attractive yield (+0.4bps) compared to short-term secondary market bills. The long-term bill had a bid-to-cover ratio of 0.8x (N480.0bn offer vs. N374.3bn subscription) while the medium-term bill was the least subscribed to with a bid-to-cover ratio of 0.3x (N230.0bn offer vs. N65.1bn subscription).

At the Primary Market Auction (“PMA’’) on Wednesday, the CBN offered a total of N274.8bn across the 91-day, 182-day and 364-day tenors. This offer was met with a total subscription of N323.8bn indicating a bid-to-cover ratio of 1.2x. Please see allotment details below:

Auction Date 30-Jan-19 30-Jan-19 30-Jan-19
Allotment / Issue Date 31-Jan-19 31-Jan-19 31-Jan-19
Tenor (91-Day) (182-Day) (364-Day)
Offer Amount (N) 28,018,956,000 69,565,347,000 177,219,063,000
Total Subscription (N) 41,045,970,000 68,419,520.000 214,384,880.00
Allotment (N) 28,018,956,000 58,684,520.00 167,932,670.00
Range of Bid Rates (%): 10.8500 – 12.0000 12.8500 – 14.5000 14.3000 – 18.0000
Stop Rates (%): 11.0000 13.5000 15.0000
Previous Stop Rates (%): 11.0000 13.1000 15.0000
Bid-To-Cover Ratio: 1.5x 1.0x 1.2x
Allotment Ratio: 0.7x 0.8x 0.8x

Going into the week, we expect to see a sustained OMO mop-ups by the Apex bank as inflow from OMO maturities worth N315.6bn is expected to buoy system liquidity. Although we expect performance to be largely bullish in the near term stemming from a system liquidity boost, investors are advised to position in attractive OMO bills (short and long-term maturities) as well as selected secondary market bills.

Please see indicative T-Bills rates below:

Maturity Tenor (Days) Rate (%) p.a. Yield (%) p.a.
14-Feb-19 10 9.00 9.02
14-Mar-19 38 9.70 9.80
02-May-19 87 10.00 10.24
16-May-19 101 9.50 9.76
01-Aug-19 178 12.40 13.20
24-Oct-19 262 13.85 15.38
12-Dec-19 321 14.06 15.97
09-Jan-20 339 13.96 16.04
OMO Auction c.100 10.70 11.03
OMO Auction c.200 12.50 13.55
OMO Auction c.350 14.20 16.45

Rates are valid till 01:45pm today (04-Feb-2019)
*Please note that the minimum subscription for T-Bills is N100,000.00

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 Guaranty Trust Bank, Ecobank, First Bank, Diamond Bank, Stanbic IBTC, Wema Bank and Zenith Bank

FGN Bonds Market Update: Bullish Sentiments Dominate Bonds Market

Last week, the bonds market reversed its bearish trend following buying interests particularly by investors with lost bids at the bonds auction on Wednesday. As a result, average yields declined 23bps W-o-W to 14.9% on Friday, crossing the 15% psychological line. The short-end of the curve witnessed a rally as more investors positioned in the 22-Mar-19 (-197bps), 12-Apr-19 (-143bps) and 17-May-19(-81bps) instruments attributable to anticipated rise in yields ahead of the general elections and handover period.

On Wednesday, the Debt Management Office (“DMO’’) conducted its first bond auction for the year offering N50.0bn apiece across the 5, 7 and 10-year bonds. While the 5 and 7-year instruments were under-subscribed, the 10-year instrument was 3.0x oversubscribed.

Please see detailed bond results below:

12.75% FGN APR 2023 13.53% FGN MAR 2025 13.98% FGN FEB 2028
Auction Date: 30-Jan-19 30-Jan-19 30-Jan-19
Tenors: 5-Year 7-Year 10-Year
Term-To-Maturity: 4 Years, 3 Months 6 Years, 2 Months 9 Years, 1 Month
Amount Offered: N50.00 billion N50.00 billion N50.00 billion
Subscription: N16.57 billion N31.25 billion N149.27 billion
Amount Allotted: N5.85 billion N20.10 billion N91.04 billion
Range of Bids: 14.8000% – 16.2500% 15.0000% – 16.3000% 13.0000% – 16.4500%
Stop Rates: 15.2000% 15.2500% 15.3500%
Previous Stop Rates: 15.2500% 15.5000% 15.5000%
Bid to Cover Ratio: 0.3x 0.6x 3.0x
Allotment Ratio: 0.4x 0.6x 0.6x

Investors are advised to cherry pick and take position in bonds trading at a discount and with attractive yields across the curve.

Please see indicative FGN bond rates below:

Bond Tenor (Years) Yield (%) Coupon (%) Implied Price (N)
Feb-20 1 14.20 15.54 101.22
Jul-21 2 14.60 14.50 99.78
Jan-22 3 14.20 16.39 105.16
Mar-24 5 14.25 14.20 99.78
Jan-26 7 14.71 12.50 90.55
Mar-27 8 14.88 16.29 106.47
Feb-28 9 15.00 13.98 92.03
Jul-34 15 14.58 12.15 85.21
Mar-36 17 14.75 12.40 85.42
Apr-37 18 14.75 16.25 109.34

Rates are valid till 01:45pm today (04-Feb-2019)
*Please note that the minimum subscription for Bonds is N20,000,000.00

To invest in FGN Bonds or T-Bills, send an email to – brokerageteam@afrinvest.com

– AFRINVEST

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