Culled—Proshare
April 27, 2020
by Afrinvest Research
Last week, demand in the Nigerian Treasury Bills (“NT-Bills”) secondary market strengthened as robust system liquidity levels (c. N668.0bn long at the start of the week) continued to bolster market sentiments despite the release of March’s inflation data which rose 6bps to 12.3% Y-o-Y.
Liquidity levels further rose to N1.1trn on Thursday following inflows from Open Market Operation (“OMO”) maturities worth N226.8bn. However, on Friday, a special Cash Reserve Requirement (“CRR”) debit by CBN to the tune of N1.4trn occurred, pushing system liquidity down to N3.3bn.
Notwithstanding the CRR debit, average yield shed 36bps W-o-W to settle at 2.7% with most buying interests skewed to the long end on the curve particularly the 11-Feb-21 (-84bps), 26-Nov-20 (-75bps) and 28-Jan-21 (-74bps) bills.
The CBN also sustained its weekly OMO intervention by mopping up a total of N112.6bn on Thursday. Although a total of N100.0bn was offered across 89-day (N10.0bn), 180-day (N10.0bn) and 341-day (N80.0bn) instruments, investor demand tilted to the 89-day instrument which showed a 6.4x bid to cover ratio. Consequently, the CBN allotted across offered tenors at 11.5%, 11.5% and 12.7% respectively.
Going into this week, the Apex bank is expected to rollover a total of N131.5bn worth of maturing NT-Bills at the Primary Market Auction (“PMA”) on Wednesday.
Please see details of this week’s PMA below:
| Tenor | 91-Day | 182-Day | 364-Day |
| Offer Amount (N) | 49,840,000,000 | 10,620,000,000 | 71,070,000,000 |
| Last Stop Rate (%) | 1.9300 | 2.7400 | 4.0000 |
| Expected Stop Rate Range (%) | 1.5000 – 1.9000 | 2.5000 – 2.8000% | 3.6000% – 4.000% |
Furthermore, inflows from OMO maturities (N30.7bn), FGN Bond coupon payments (N142.0bn) and FAAC disbursements are expected to improve system liquidity. Notwithstanding, we envisage quiet trading sessions as investors wait on the sidelines ahead of the PMA.
Please see indicative secondary market NT-Bills rates below:
| Maturity | Tenor (Days) | Rate (%) p.a. | Yield (%) p.a. |
| 2-Jul-20 | 66 | 2.50 | 2.51 |
| 24-Sep-20 | 150 | 3.40 | 3.45 |
| 26-Nov-20 | 213 | 3.70 | 3.78 |
| 14-Jan-21 | 262 | 4.00 | 4.12 |
| 11-Feb-21 | 290 | 4.20 | 4.34 |
Rates are valid till 01:45pm today (27-Apr-2020)
*Please note that the minimum subscription for T-Bills is N100,000.00
FGN Bonds Update: Bond Auction Witnesses Robust Demand as Renewed Interest from Local Investors Causes Average Yield to Contract by 52bps W-o-W
In tandem with the NT-Bills market, activities in the Bond market last week remained bullish as average yields contracted 52bps W-o-W to settle at 10.5%. The week started off on a quiet note owing to a pullback in demand from local investors who reacted to the crash in oil prices as well as the anticipated bond auction on Tuesday.
However, on Wednesday, renewed domestic demand filtered into the market following the quantum of unmet bids at the bond auction. Most buying interests were recorded on the short end of the yield curve particularly the 14-Mar-24 (-143bps), 23-Mar-25 (-129bps) and 22-Jan-26 (-235bps) maturities.
At the bond auction, the Debt Management Office (“DMO”) raised N156.1bn across the APR-2023 (reopening), MAR-2035 (reopening), and MAR-2050 (reopening) bonds, representing a 260.0% increase above its scheduled offer of N60.0bn and c.95% of total borrowings it planned to raise in Q2:2020.
The result showed a total subscription of N275.7bn, translating to a 4.6x bid-to-cover ratio (vs. 3.6x at the previous auction which held on 25-Mar-20). All tenors were oversubscribed with the 30year (reopening) enjoying the most interest. Thus, stop rates declined to 9.0%, 12.0% and 12.5% respectively. We believe the aggressive borrowing by the DMO highlights the fiscal pressures facing the Federal Government viz-a-viz high financial system liquidity.
Please see a summary of the auction outcome below:
| Bonds | 12.75% FGN APR 2023 (Re-opening) | 12.50% FGN MAR 2035 (Re-opening) | 12.98% FGN MAR 2050 (Re-opening) |
| Auction Date | 22-Apr-20 | 22-Apr-20 | 22-Apr-20 |
| Allotment / Issue Date | 24-Apr-20 | 24-Apr-20 | 24-Apr-20 |
| Term to maturity | 3 Years | 14 Years, 11 Months | 29 Years, 11 Months |
| Offer Amount (N) | 20,000,000,000.00 | 20,000,000,000.00 | 20,000,000,000.00 |
| Total Subscription (N) | 49,700,000,000.00 | 107,470,000,000.00 | 118,500,000,000.00 |
| Allotment (N) | 30,070,000,000.00 | 72,250,000,000.00 | 53,740,000,000.00 |
| Range of Bid Rates (%) | 7.0000 – 12.5000 | 11.4000 – 14.0000 | 12.2000 – 14.0000 |
| Stop rates (%) | 9.0000 | 12.0000 | 12.5000 |
| Previous stop rates (%) | 10.0000 | 12.5000 | 12.9800 |
| Bid-to-Cover Ratio | 2.5x | 5.4x | 5.9x |
| Allotment Ratio | 0.6x | 0.7x | 0.5x |
This week, we expect investors to remain wary of the impact of sustained low crude oil prices amid potential lockdown extension by the government. Nevertheless, we do not rule out some demand from investors seeking to re-invest their inflows from bond coupon payments in the secondary market. Thus, we advise investors to position in bonds with attractive yields
Please see indicative FGN bond rates below:
| Bond | Tenor (Years) | Yield (%) | Coupon (%) | Implied Price |
| Jul-21 | 2 | 4.30 | 14.50 | 111.96 |
| Jan-22 | 3 | 4.40 | 16.39 | 119.97 |
| Apr-23 | 4 | 7.65 | 12.75 | 113.44 |
| Mar-24 | 5 | 7.55 | 14.20 | 121.98 |
| Mar-25 | 6 | 8.40 | 13.53 | 120.26 |
| Jan-26 | 7 | 8.15 | 12.50 | 119.59 |
| Mar-27 | 8 | 11.54 | 16.29 | 122.11 |
| Feb-28 | 9 | 10.35 | 13.98 | 119.11 |
| Jul-34 | 15 | 11.60 | 12.15 | 103.74 |
| Mar-36 | 17 | 10.70 | 12.40 | 112.83 |
| Apr-37 | 18 | 10.70 | 16.25 | 143.02 |
| Apr-49 | 30 | 11.55 | 14.80 | 127.05 |
Rates are valid till 01:45pm today (27-Apr-2020)
*Please note that the minimum subscription for T-Bills is N20,000,000.00
