Buoyant System Liquidity to Trigger Bullish Performance – Afrinvest

Last week, activity in the Treasury Bills (“T-Bills”) market was bearish as average rate across tenors inched marginally 5bps W-o-W to 11.72% from 11.68% the previous week. In the first trading sessions last week, sentiment in the market was slightly bullish driven by positive system liquidity (N209.0bn on Monday) which was reversed by Wednesday.

Rates advanced across long and medium-term instruments (+57bps and +20bps respectively) due to increase sell offs mainly on the 18-Jul-18 (+84bps) and 06-Dec-18 (+87bps) maturities. On the flipside, rates on short-term bills declined (-40bps) due to buying interest particularly in September bills.

At the Primary Market Auction (“PMA”), the CBN allotted N206.9bn across the three tenors. The 91 and 182-day instruments were 0.9x subscribed apiece while the 364-day instrument was 1.1x oversubscribed. Stop rates across all tenors increased – 11.00% (vs.10.00%), 12.30% (vs. 10.40%) and 13.05(vs. 11.22%) on the 91, 182 and 364-day instruments respectively.Please see detailed result below:

Auction Date 29-Sep-2018 29-Sep-2018 29-Sep-2018
Allotment / Issue Date 30-Sep-2018 30-Sep-2018 30-Sep-2018
Tenor (91-Day) (182-Day) (364-Day)
Offer Amount (N) 24,960,588,000 44,993,786,000 137,000,000,000
Total Subscription (N) 22,727,507,000 38,751,846,000 146,071,766,000
Allotment (N) 22,727,507,000 38,751,846,000 145,475,021,000
Range of Bid Rates (%): 9.9000 – 11.0000 10.0000 – 12.3000 10.7500 – 18.4000
Stop Rates (%): 11.0000 12.3000 13.0456
Allotment Ratio 1.0x 1.0x 1.0x
Subscription Ratio 0.9x 0.9x 1.1x

On Thursday, the CBN conducted an OMO auction offering N300.0bn across the 91 and 203-day tenors. However, following the high bids (11.45%- 14.00% for the short tenor and 12.15%-15.00% for the long tenor) placed by market players as a result of the hike in PMA rates by the Apex bank the previous day as the CBN did not allot to investors.
Please see indicative T-Bills rates for today below:

Maturity Tenor (Days) Rate (%) p.a. Yield (%) p.a.
1-Nov-18 59 8.90 9.03
13-Dec-18 101 10.40 10.71
3-Jan-19 122 10.96 11.38
18-Jul-19 318 10.86 11.99
OMO Auction 240-300 11.30 12.06

Rates are valid till 1:45pm today (03-Sep-18)
*Please note that the minimum subscription for T-Bills is N100,000.00

This week, we expect the buoyant liquidity in the financial system- N480.7bn as at Friday (due to “no-sale” at the last OMO auction) as well as anticipated OMO maturity (worth N294.5bn on Thursday) and expected FAAC inflow (N338bn early in the week) to boost buying interest in the market. Notwithstanding, we expect investors to remain cautious due to the hike in PMA rates leading to wider bid-offer spread.
That said, we envisage that the CBN would actively mop up funds through its regular interventions and advise investors to take advantage of OMO offers as well as medium term bills that advanced last week.

Please see secondary market Commercial Paper (“CP”) rates for today below:

Type Maturity Tenor Rate (%) Yield (%)
Dangote Cement 14-May-19 253 11.50 12.50
Dangote Cement 13-Feb-19 163 11.40 12.01
Access 15-Nov-18 73 11.00 11.25

Rates are valid till 1:45pm today (03-Sep-18)
*Please note that the minimum subscription for CP is N50,000,000.00

FGN Bonds Market Update: Average Yield Advance 24bps W-o-W to 14.8%
In line with our bonds market expectations, the bearish run was sustained as sell-offs triggered by the PMA rates hike as well as weakening Emerging market sentiments prevailed.  Consequently, average rates advanced 24bps W-o-W to 14.8% from 14.6%. Major sell- pressure were witnessed in the Sep-19 (+88bps) and Aug-19 maturity (+85bps).
Please see indicative bond rates for today below:

Bond Tenor (Years) Yield (%) Coupon (%) Implied Price (N)
Feb-20 2 12.95 15.54 103.50
Jul-21 3 13.40 14.50 102.60
Jan-22 4 13.25 16.39 108.55
Mar-24 6 13.52 14.20 102.58
Jan-26 8 14.03 12.50 93.04
Mar-27 9 13.92 16.29 111.64
Feb-28 9 14.27 14.00 98.61
Jul-34 16 14.05 12.15 88.01
Mar-36 18 14.05 12.40 89.29
Apr-37 19 14.08 16.25 114.14

Rates are valid till 1:45pm today (03-Sep-18)
*Please note that the minimum subscription for Bonds is N20,000,000.00

Going into the week, we expect the bearish sentiment to persist despite attractive yields as concerns around emerging markets remain evident. However, we do not rule out bargain hunting in select bonds with yields around 15.0% psychological line.

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

AFRINVEST

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