Tight System Liquidity Expected to Drive Rates upwards plus T-Bills and FGN Bonds Indicative Rates

The Treasury Bills (“ T-Bills ”) market started on a bullish note last week on the back of a robust system liquidity, however this was reversed due to Primary Market Auction (“PMA”) and Open Market Operation (“OMO”) auctions which lowered liquidity levels. Consequently, average rate across tenors declined 2bps W-o-W to settle at 12.7%. Across tenors, short-term bills continue to experience persistent sell-offs as rates increased 0.3% W-o-W to close at 12.7% with 25-Oct-18 (+0.8%) and 18-Oct-18 (+0.6%) witnessing the most sell-offs. On the flip side, bullish sentiments were observed on the medium-term and long-term instruments with rates moderating 0.1% and 0.4% W-o-W respectively to close at 12.5% and 13.0%. Buying interest driven by excess system liquidity was observed on the 4-Apr-19 (-0.6%), 14-Feb-19 (-0.6%), 1-Aug-19 (-0.5%) and 19-Sep-19 (-0.5%) bills.

Excess liquidity at the start of trading on Tuesday drove buying interest amidst mild sell-offs from off-shore investors. On Wednesday and Thursday, trading followed similar trend with previous session as rates declined further by 9bps while local investors joined the sell-offs on Friday in bid to free up liquidity for OMO auction debit.

The Apex bank conducted a PMA on Wednesday which was largely successful, however, the stop rates declined across all tenors relative to the previous auction. The CBN offered a total of N133.5bn worth of T-Bills for sale but received a subscription of N438.4bn translating to a Bid-Cover ratio of 3.3x with the 364-day instrument receiving the most buying interest of N397.5bn (vs. N106.4bn offered).

The table below presents further details on the PMA:

Tenor (91-Day) (182-Day) (364-Day)
Offer Amount (N) 9,520,117,000 17,600,581,000 106,370,499,000
Total Subscription (N) 9,520,117,000 31,439,683,000 397,483,688,000
Allotment (N) 9,520,117,000 17,600,581,000 106,370,499,000
Range of Bid Rates (%): 10.6000 – 10.9000 11.7499 – 13.0000 12.8500 – 18.0000
Stop Rates (%): 10.9 12.098 13.33
Bid-Cover Ratio 1.0x 1.8x 3.7x
Allotment Ratio 1.0x 1.0x 1.0x

The CBN held OMO Auction once last week on Thursday. The Apex bank offered N100.0bn and N300.0bn on the 182-day and 364-day tenors both receiving subscriptions of N80.6bn (Bid-Cover ratio of 0.8x) and N472.4bn (Bid-Cover ratio of 1.6x) respectively. The oversubscription of the long-term bills at the PMA and OMO auction indicates investors may not expect any further significant rise in interest rate, thus positioning for the long term.

In this week’s trading session, OMO maturity of N277.1bn will hit the system on Thursday. System liquidity currently stands at N474.0bn short following the debits for PMA, OMO and Bond auction last week. Thus, with system liquidity on a tight level, we anticipate some sell-offs particularly on the short and medium end of the curve with continued buying interest on long term bills to moderate bearish sentiments.

Please see indicative T-Bills rates for today below:

Maturity Tenor (Days) Rate (%) p.a. Yield (%) p.a.
08-Nov-18 31 10.60 10.70
29-Nov-18 52 10.70 10.87
10-Jan-19 94 11.00 11.32
12-Sep-19 339 12.20 13.76
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 (08-Oct-18)

*Minimum amount for T-Bills is N100,000

Bonds Market Update: Buying Interest Sustained as Bonds Market Extend Bullish Run into Third Week

In line with our guidance for the bond market, bullish sentiments were sustained into the third consecutive week as average yield across all traded instruments declined 0.2% W-o-W to settle at 14.3%. Buying interest among local investors as well as reduced sell-offs from off-shore investors continued to drive yields lower across all ends of the curve with yields across Short, Mid and Long-term bonds declining 0.3%, 0.3% and 0.1% respectively.

Going into the week, we anticipate a halt to the bullish run as buying interest tapers while short term investors book profit on positions taken as already witnessed towards the close of last week from offshore investors.

Please see below indicative Bonds rates for today:

Bond Tenor (Years) Yield (%) Coupon (%) Implied Price (N)
Feb-20 2 13.50 15.54 102.38
Jul-21 3 14.30 14.50 100.38
Jan-22 4 13.75 16.39 106.75
Mar-24 6 14.70 14.20 98.14
Jan-26 8 14.65 12.50 90.51
Mar-27 9 14.92 16.29 106.43
Jul-34 16 14.80 12.15 83.92
Mar-36 18 14.90 12.40 84.57
Apr-37 19 14.80 16.25 109.09

*Please note rates are valid till 1:45pm today (08-Oct-18)
*Minimum amount for FGN Bonds is N20m

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

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