Buying Interest Pressures Rates Lower as Average Rate Declines 1.6% W-o-W: Treasury Bills and Bonds Indicative Rates

The bearish trend was reversed last week as demand returned to the secondary Treasury Bills (“ T-Bills”) market on the back of persistent buoyant system liquidity and the reduction of OMO mop ups by the CBN. Thus, average rate across tenors contracted (1.6%) to close at 12.2% from 13.8% the previous week as investors’ buying interest resurfaced especially at the shorter-end of the curve which declined 238bps W-o-W with most buying interest witnessed in the 11-Oct-18 bill (-5.7%W-o-W). Similarly, rates across the mid-term instruments retreated 1.0% W-o-W to 12.6% while rates on the long term bills declined marginally by 0.3% W-o-W to 13.4% from 13.7% as investors anticipated better rates (last stop rate 13.5%) at the Primary Market Auction (“PMA”).

At the PMA on Wednesday, the CBN maintained stop rate at 11.0% on the 91-day while the 182-day and 364-day instrument slid from 12.3% to 12.2% and 13.5% to 13.475% respectively. Additionally, the auction recorded strong demand across all tenors (91 days – 1.6x, 182 days – 1.4x and 364 days – 2.5x oversubscribed) as the Apex bank’s N182.2bn total offering was N440.0bn oversubscribed majorly at the long-term instrument at 2.5x.

Please see details of the PMA results below:

Auction Date 19-Sep-18 19-Sep-18 19-Sep-18
Allotment / Issue Date 20-Sep-18 20-Sep-18 20-Sep-18
Tenor (91-Day) (182-Day) (364-Day)
Offer Amount(N) 5,395,696,000 8,385,196,000 168,361,351,000
Total Subscription (N) 8,601,351,000 11,858,049,000 419,491,647,000
Allotment (N) 5,395,696,000 8,385,196,000 168,361,351,000
Range of Bid Rates (%): 11.0000 – 13.4000 11.9500 – 14.4000 13.0000 – 15.5582
Stop Rates (%): 11.000 12.200 13.475
Subscription Ratio: 1.6x 1.4x 2.5x
Allotment Ratio: 1.0x 1.0x 1.0x

On Thursday, the CBN conducted its Open Market Operations (“OMO”) auction, offering a total of N550.0bn across the 91, 182 and 364-day maturities respectively. While demand at the short and mid-tenored instruments were low (undersubscribed by 99.0% and 74.3% respectively), the long-term instrument was 27.8% oversubscribed (N383.4bn subscribed vs. N300.0bn offered). Consequently, the 91-day bill was not sold while the 182 and 364-day instruments witnessed 20.7% and 102.2% sale respectively.

Please see indicative T-Bills rates for today below:

Maturity Tenor (Days) Rate (%) p.a. Yield (%) p.a.
25-Oct-18 31 8.70 8.76
20-Dec-18 87 10.20 10.45
03-Jan-19 101 11.00 11.35
07-Feb-19 136 11.51 12.03
OMO Auction c.200 11.50 12.27
OMO Auction c.300 12.20 13.68

Rates are valid till 1:45pm today (24-Sep-18)
*Please note that the minimum subscription for T-Bills is N100,000.00

This week, the inflow of OMO maturity worth N260.8bn as well as FAAC will hit the system boosting liquidity levels (opening this week N180.0bn long). Although, we anticipate the CBN to actively mop-up excess liquidity through its customary interventions, we expect to see more buying activity in the market due to the buoyant level of liquidity, thus we envisage that rates will trend lower.

FGN Bonds Market Update: Local Investors Buoy Demand as Average Yield Declines -0.7%W-o-W

Last week, local investors’ demand buoyed the bullish performance recorded in the Bonds market as investors focused on the shorter end of the curve, particularly the 19-Mar-2019 (-96bps) and 12-Apr-2019 (-88bps) maturities. Consequently, average yields declined -0.7% W-o-W to 14.3% from 15.0% the previous week.

Please see indicative bond rates for today below:

Bond Tenor (Years) Yield (%) Coupon (%) Implied Price (N)
Feb-20 2            13.50             15.54                   102.46
Jul-21 3            15.05             14.50                     98.72
Jan-22 4            14.45             16.39                   104.94
Mar-24 6            14.80             14.20                     97.79
Jan-26 8            15.10             12.50                     88.66
Mar-27 9            15.05             16.29                   105.82
Jul-34 16            14.80             12.15                     83.92
Mar-36 18            14.90             12.40                     84.57
Apr-37 19            14.80             16.25                   109.07

Rates are valid till 1:45pm today (24-Sep-18)
*Please note that the minimum subscription for Bonds is N20,000,000.00

Going into the week, we expect demand to wane as investors interest reduce due to tightened rates and an upcoming bonds auction, while negative sentiments towards Emerging markets persist.

Please see details of the Bonds Auction below:

Instruments 12.75% FGN APR 2023
(Re-opening)
13.52% FGN MAR 2025
(Re-opening)
13.98% FGN FEB 2028
(Re-opening)
Tenor 5-year 7-year 10-year
Range of Amount on Offer (N’bn) 20-30 20-30 35-45
Last Auction Marginal Rates 14.3900% 14.6000% 14.6900%

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

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