FGN Bonds Update:Bearish Run Reversed Following surprising Bond Auction results; Average Yield Declines 24bps W-o-W

April 1, 2019 BusinessTrumpet

Last week, the bonds market traded on a bullish note following investors positioning ahead of the Monetary Policy Committee meeting and the bond auction which held on Tuesday and Wednesday respectively. As a result, average yields moderated by 24bps to settle at 13.9% from 14.2% the previous week. Major buying interests were witnessed at the medium and long-end of the curve particularly the 15-Jul-21(-61bps), 16-Jan-22 (-46bps) and 23-Mar-25 (-25bps) maturities.The result of the bond auction conducted by the DMO was quite surprising. While a total of N100bn was on offer across the three instruments (5, 7 and 10-year maturities), only a total of N29.4bn was allotted despite receiving total subscription of N148.5bn.

While the APR 2023 and MAR 2025 instruments were undersubscribed by 0.5x and 0.7x respectively, the FEB 2028 maturity was oversubscribed by 5.0x accentuating the sustained investors preference for longer term instruments. Furthermore, bid rates of all the 3 instruments declined to 13.5% which was considerably lower than the marginal rates recorded at the February auction. We believe that this was as a result of the 50bps cut by the MPR the day before the auction held.

Please see below a summary of the Bond auction result

	12.75% FGN APR 2023	13.53%FGN MAR 2025	13.98% FGN FEB 2028
Tenor	5-Year	7-Year	10-Year
Term to maturity	4 Years, 1 Month	6 Years	8 Years, 11 Months
Amount Offered (N)	40,000,000,000.00	40,000,000,000.00	20,000,000,000.00
Total Subscription (N)	21,620,000,000.00	26,170,000,000.00	100,680,000,000.00
Amount Allotted: (N)	3,800,000,000.00	5,550,000,000.00	20,000,000,000.00
Range of Bid Rates (%)	13.0000 – 15.0000	13.0000 – 15.3000	13.0000 – 14.9500
Stop Rates (%)	13.5000	13.5000	13.5000
Previous Stop Rates (%)	14.5200	14.7999	14.9390
Bid-to-Cover Ratio	0.5x	0.7x	5.0x
Allotment Ratio	0.2x	0.2x	0.2x

The Debt Management Office (‘’DMO’’) released the details for the April FGN Savings Bond today. Given the dovish policy environment, there was a slight compression in rates for the 2-year and 3-year Savings Bond to 11.276% and 12.276% respectively.

In addition, we expect the sovereign bond market to open on a sluggish note with soft moderation in yields as investors continue to process the likely impact of the MPR on the economy amongst other external developments in the global economy. Investors are advised to cherry pick and take position in bonds trading at a discount across the curve.

Please see below indicative Bond rates:

Bond	Tenor (Years)	Yield (%)	Coupon (%)	Implied Price (N)
Jul-21	2	14.85	14.50	99.27
Jan-22	3	14.60	16.39	103.99
Mar-24	5	14.55	14.20	98.78
Jan-26	7	14.63	12.50	90.94
Mar-27	8	14.58	16.29	107.90
Feb-28	9	14.40	13.98	92.03
Jul-34	15	14.43	12.15	86.02
Mar-36	17	14.40	12.40	87.41
Apr-37	18	14.30	16.25	112.48