T- Bills Market Reverses Bullish Run as PMA Holds Tomorrow: T-Bills and FGN Bonds Indicative Rates

October 2, 2018 BusinessTrumpet

The Nigerian Treasury Bills (“T-Bills”) market reversed prior week’s bullish performance as average rate across tenors closed higher by 0.2% W-o-W to settle at 12.5% on Friday. Investors sold off short term instruments particularly 11-Oct-18 (+1.9%) and 18-Oct-18 (+1.6%). The long-term bills also witnessed sell pressures as investors sold off some positions in 1-Aug-19 and 18-Jul-19 bills with rates on both instruments inching higher by 4bps and 3bps respectively. On the flip side, medium term instruments recorded a bullish performance as average rate slid 11bps with buying interest recorded in 3-Jan-19 (-0.5%) and 17-Jan-19 (-0.4%).

Noteworthy to mention is the decision of the Monetary Policy Committee (“MPC”) to hold its key policy rate at 14.0% during its last meeting. That said, following sell-offs in the first 3 trading days, buying interests resurfaced on Thursday as average rate edged lower 0.1%. Meanwhile, the CBN did not conduct any Open Market Operation (“OMO”) auction last week despite buoyant system liquidity at N581.6bn long bolstered by OMO maturity repayment of N260.8bn on Thursday. This may be attributed to CBN’s decision to play less aggressively as portfolio investors wound up their books for the 3^rd quarter.

This week, the CBN will be conducting a Primary Market Auction (“PMA”) to rollover maturing bills worth N133.5bn. The table below summarises details of the auction as well as expected stop rate range:

Tenor	91-Day	182-day	364-Day
Amount on Offer	N9.5bn	N17.6bn	N106.4bn
Last Stop Rate	11.0000%	12.2000%	13.4750%
Expected Stop Rate	11.00%-11.20%	12.30%-12.50%	13.30%-13.50%

Going into the week, T-Bills and OMO maturities of N133.5bn and N268.2bn are expected to hit the system coupled with FAAC inflows that came in close of Friday, thus we expect liquidity level to remain high. While a PMA will be conducted by the Apex bank to rollover the maturing bills, we expect more OMO auctions this week as CBN looks to mop up excessive liquidity. Nevertheless, we expect rates to trend southwards on sustained buying interest in the secondary market due to high level of system liquidity.

Please see below rates for today:

Maturity	Tenor (Days)	Rate (%) p.a.	Yield (%) p.a.
25-Oct-18	23	9.30	9.37
20-Dec-18	79	10.00	10.16
03-Jan-19	93	10.70	11.02
21-Feb-19	142	11.56	12.13
01-Oct-19	364	12.80	14.67
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 (02-Oct-18)
*Minimum amount for T-Bills is N100,000

Bonds Market Update: Local Bonds Market Extends Bullish Run on Increased Buying Enthusiasm
The Local bonds market extended its bullish run into the second consecutive week as average yield slid lower by 0.1% W-o-W to 14.5%. The market witnessed increased appetite for Nigerian bonds particularly among domestic investors on the back of what proved to be the strongest Bond auction in 8 months with the DMO selling N96.7bn as against N39.7bn in August (+143.6%) and N66.9bn in July (+44.5%). Below are full details of the Bond auction held last week:

	12.75% FGN APR 2023	13.53% FGN MAR 2025	13.98% FGN FEB 2028
Tenor	5-Year	7-Year	10-Year
Amount Offered	N25.0bn	N25.0bn	N40.0bn
Total Subscription	N20.7bn	N12.5bn	N125.4bn
Amount Allotted	N17.5bn	N7.4bn	N71.9bn
Range of Bids	14.7400%-16.1000%	14.0000%-16.0000%	12.9800%-16.5000%
Marginal Rates	15.0000%	15.1500%	15.2459%
Bid to Cover Ratio	0.8x	0.5x	3.1x
Allotment Ratio	0.7x	0.3x	1.8x

This week, we anticipate the bullish run to continue as domestic investors take position in instruments with attractive yields.

See below bond rates for today:

Bond	Tenor (Years)	Yield (%)	Coupon (%)	Implied Price (N)
Feb-20	2	13.20	15.54	102.79
Jul-21	3	14.50	14.50	99.94
Jan-22	4	14.10	16.39	105.84
Mar-24	6	14.55	14.20	98.69
Jan-26	8	14.75	12.50	90.09
Mar-27	9	15.00	16.29	106.05
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	109.08