Culled—-Proshare

June 8, 2020

by Afrinvest Research

The bullish trend in the Nigerian Treasury Bills (“NT-Bills”) market was halted following weeks of sustained buying interest from investors seeking to lock in funds from matured investments amid the economic uncertainty posed by COVID-19 as well as limited alternative money market options. As a result, yields spiked 129bps W-o-W to settle at 3.4%.

In the first two trading sessions last week, activities were quiet. However, a bearish trend surfaced on Wednesday due to sharp selloffs on short and mid tenor instruments. At the short end of the curve, average yield expanded 197bps with selloffs concentrated on the 27-Aug-20 maturity (+336bps). While that of the mid segment rose 146bps with most of the selloffs skewed to the 10-Sep-20 maturity (+280bps).

Although, system liquidity improved on Thursday (c.N737.9bn) bolstered by Open Market Operations (“OMO”) inflows worth N149.7bn, investor sentiment remained weak for the last two trading sessions as the CBN floated an OMO auction to manage the excess liquidity.

The auction witnessed a total oversubscription of N298.7bn across the 82-, 173- and 341-day offered tenors. Nevertheless, the CBN allotted only the offered amount of N70.0bn across the three tenors with stop rates trending lower to 5.0%, 7.8% and 9.0% respectively. Furthermore, the Apex bank debited some banks for CRR requirement which pushed system liquidity down to N465.3bn long on Friday.

Following the release of its Q3:2020 issuance calendar, in which a total of N821.7bn will be rolled over in the third quarter, the CBN is scheduled to conduct a NT-Bills Primary Market Auction (“PMA”) this week. 

Please see details of our expectations below:

This week, additional inflows from OMO maturities worth N92.8bn as well as unfilled bids from last week’s PMA  are expected to uplift system liquidity. Depending on the outcome of the PMA, we expect activities in the secondary market to remain lukewarm with rates broadly stable. We also do not rule out the tendency for domestic investors to re-invest some of their OMO maturities while searching for more attractive yields in potential Commercial Paper offerings. 

Please see indicative secondary market T-Bills rates below:

Rates are valid till 01:45pm today (8-Jun-2020)

*Please note that the minimum subscription for T-Bills is N100,000.00

FGN Bonds Update: Investor Demand Wanes as Average Yield Declines Marginally 9bps W-o-W

The rally in the bonds market waned last week as average yield declined marginally by 9bps W-o-W to 10.0%. Driven by local investors, market sentiment was largely mixed with varying interests spread across the yield curve. Specifically, average yield on the short-dated bonds inched 3bps while the that of the medium and long dated bonds compressed by 16bps and 9bps respectively.

During the week, the Federal Government of Nigeria secured approval from the Senate to raise additional $5.5bn external borrowings to support its fiscal expenditure. The proposed  borrowing plan comprises a $3.4bn loan from the International Monetary Fund at 1.0% interest rate which has been accessed; a $1.5bn loan from the World bank at 2.38%; a $500.0m loan from the African Development Bank at 1.32% and a $113.0m loan from the Islamic Development bank at 0.4%.

We believe this strategy will be positive for the government if it crystallizes, especially given the concessionary terms. Nevertheless, there is need for cautious deployment to ensure optimal impact amidst uncertainty in the rife number of COVID-19 cases and expected government revenues.

Going into this week, we anticipate demand to remain soft as investors trade cautiously on the back of the improved yield environment witnessed at the NT-Bills market. 

Please see indicative FGN bond rates below:

Rates are valid till 01:45pm today (8-Jun-2020)

*Please note that the minimum subscription for Bonds is N20,000,000.00