Yields on Long Tenored Instruments Remain Attractive at Above 16.0%

The Treasury Bills ( “ T-Bills ” ) market last week recorded a bullish performance as FAAC inflows of N382.0bn buoyed system liquidity which opened at N161.7bn long pressuring rates lower. Consequently, average T-Bills rate across tenors declined 50bps W-o-W to settle at 12.6% from 13.1% W-o-W. On the back of higher interest rate expectation ahead of the 2019 general election, investors positioned more in short tenored bills leading to 90bps W-o-W decline to 11.7% driven by lower rates on 22-Nov-18 (-3.1%) and 29-Nov-18 (-1.9%) instruments. The Medium tenored instruments also received some buying interest as yields decline in 14-Feb-19 (-0.7%) and 21-Feb-19 (-0.5%) driving average rate on mid-tenored instruments lower by 20bps W-o-W to close at 12.8%. On the flip side, long tenored instruments witnessed mild sell-offs as average rates on long tenored instruments rose 0.1% to settle at 14.2% W-o-W due to higher rates at the PMA and OMO auctions.

Last week, the Apex bank conducted a Primary Market Auction (“PMA”) to rollover maturing T-bills of N145.3bn. Noticeably, stop rates across all tenors on offer increased from the last auction with the 364-day tenor recording a significant jump of c.1.0%.

Please see below details of the auction:

Auction Date 31-Oct-18 31-Oct-18 31-Oct-18
Allotment / Issue Date 01-Nov-18 01-Nov-18 01-Nov-18
Tenor (91-Day) (182-Day) (364-Day)
Offer Amount (N) 9,541,924,000 47,709,615,000 88,037,883,000
Subscription (N) 7,913,753,000 43,522,527,000 212,000,523,000
Allotment (N 7,851,744,000 43,522,527,000 93,915,151,000
Range of Bid Rates (%): 10.7000 – 13.0000 12.0000 – 13.4900 13.2000 – 15.9900
Stop Rates (%): 10.9752 13.4900 14.4000
Bid-Cover Ratio 0.8x 0.9x 2.4x
Allotment Ratio 0.8x 0.9x 1.1x

The CBN conducted OMO Auction on Thursday offering N200.0bn, N300.0bn and N500.0bn across the 91-day, 182-day and 350-day tenors. The offer was largely undersubscribed with an overall Bid-Cover ratio of 0.5x as investors continue to anticipate higher rates in subsequent auctions.

Please see below more information on the auction:

Tenor (91-Day) (182-Day) (350-Day)
Offer Amount (=N=) 200,000,000,000 300,000,000,000 500,000,000,000
Subscription (=N=) 840,000,000 74,120,000,000 462,580,000,000
Allotment (=N=) 840,000,000 62,800,000,000 453,980,000,000
Range of Bid Rates (%): 11.5000-11.5000 13.0000-14.0000 14.5000-15.0000
Stop Rates (%): 11.5000 13.0000 14.5000
Bid-Cover Ratio 0.0x 0.2x 0.9x
Allotment Ratio 0.0x 0.2x 0.9x

This week, with system liquidity at c. N800bn on Friday due to some unidentified inflows as well as OMO maturity of N376.0bn on Thursday, we expect the CBN to increase the frequency of its OMO auction. On the back of our expectation of higher yields ahead of the 2019 general elections, investors are advised to take position more in Dec and Jan bills.

Please see below indicative T-Bills rates for today:

Maturity Tenor (Days) Rate (%) p.a. Yield (%) p.a.
13-Dec-18 38 9.20 9.29
17-Jan-19 73 10.60 10.83
21-Mar-19 136 11.40 11.91
OMO Auction c.200 12.50 13.42
OMO Auction c.350 13.50 15.51

*Please note rates are valid till 1:45pm today (05-Nov-18)
*Minimum amount for T-Bills is N100,000

FGN Bonds Market Update: Off-shore Investors Sell Pressure remains Sustained as Average Yield Rose to 14.9%

In the bonds market, while off-shore investors continue to exit Nigerian sovereign bonds, domestic buying interest remains sustained with the offshore outflows however outpacing the local buying interest. Consequently, average rates on Nigerian sovereign bonds inched higher marginally by 0.1% with longer-dated instruments taking the biggest hit as sell-offs in 18-JUL-34 (+0.4%) and 18-Mar-36 (+0.4%) pushed yields on long term higher by 0.3%. Sell-offs were also observed in the mid-term instruments with average yield rising by 0.2% while the near dated instruments recorded mild sell-offs with yields moving northwards by 5bps.

During the week, we anticipate off-shore investors would continue to exit positions following higher yields in the US and higher country specific risk premium placed on the Nigerian market. Thus, we expect a bearish trading week in the bonds market.

Please see below indicative FGN Bond rates for today: 

Bond Tenor (Years) Yield (%) Coupon (%) Implied Price (N)
Feb-20 2            14.20             15.54                   101.44
Jul-21 3            15.10             14.50                     98.65
Jan-22 4            14.40             16.39                   104.92
Mar-24 6            15.10             14.20                     96.72
Jan-26 8            15.40             12.50                     87.57
Mar-27 9            15.40             16.29                   104.05
Feb-28 10            15.62             13.98                     92.03
Jul-34 16            15.60             12.15                     79.92
Mar-36 18            15.35             12.40                     82.21
Apr-37 19            15.30             16.25                   105.77

*Please note rates are valid till 1:45pm today (05-Nov-18)
*Minimum amount for FGN Bonds is N20,000,000

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

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