Rates Expected to Trend Higher on Tighter System Liquidity: T-Bills & FGN Bonds Indicative Rates

In line with our expectation, performance in the T-Bills market last week was bullish on the back of an improved system liquidity following inflows – fixed income instruments maturities and FAAC disbursements worth about N935bn. Consequently, average rates across tenors declined 94bps W-o-W to 12.20%.

The bullish sentiment was observed across all ends of the curve with the major moderation observed across the short end of the curve as rates closed 38bps lower W-o-W with the 14-Jun-18 instrument dipping the most – down 1.2% W-o-W. The medium tenor instruments trailed as average rate declined 25bps W-o-W due to a moderation in rate on the 20-Sep-18 maturity (-0.8%) while rates remained flattish at the long tenor end of the curve.

The Primary Auction on Wednesday was 2.08x oversubscribed as investors subscription totaled N103.0bn compared to N49.6bn offered. The stop rates for the 91, 182 and 364-day instruments were 10.00% (unchanged), 10.30% (vs.10.50%) and 11.00% (vs.10.70%) respectively. Please see results below:

Auction Date5/30/20185/30/20185/30/2018
Allotment / Issue Date5/31/20185/31/20185/31/2018
Tenor(91-Day)(182-Day)(364-Day)
Offer Amount (=N=)4,960,588,00024,802,939,00019,842,352,000
Subscription (=N=)5,210,588,00034,853,939,00062,983,039,000
Allotment (=N=)4,960,588,00024,802,939,00019,842,352,000
Range of Bid Rates (%):9.7000 – 12.000010.0000 – 13.200010.0000 – 12.5000
Stop Rates (%):10.000010.300011.0000

The bearish trend in the OMO market was sustained last week as the auctions held on Thursday andFriday were 30% (800bn offered vs 561.3bn subscription) and 61% (450bn offered vs 174.9bn subscription) undersubscribed respectively on the back of more attractive yields in the secondary market. At the end of the auction on Friday, system liquidity closed at N84.3bn positive.

Please see available rates for today below:

MaturityTenor (Days)Rate (%) p.a.Yield (%) p.a.
14-Jun-18108.208.22
09-Aug-186610.9011.12
18-Oct-1813610.9011.36
03-Jan-1921311.4012.21
OMO Auction220-28011.00

Rates are valid till 1:45pm today (04-Jun-18)
*Please note that the minimum subscription for T-Bills is N200,000.

This week, an OMO maturity of N215.9bn is expected to hit the system on Thursday. With a focus on FX stability, we expect the CBN to increase frequency of OMO mop ups to tighten system liquidity. Also, we expect yields in the T-Bills secondary market to appreciate on the back of an anticipated bearish performance following a tighter system liquidity relative to last week.

Bonds Market Posts Bullish Performance: Yields Down 34bps W-o-W
Last week, yields across FGN bond instruments declined 34bps W-o-W to close at 12.9%. The largest decline was observed across the short tenor instruments with yields shedding 49 bps to close at 12.5%. The medium tenor & long tenor instruments dipped 39 bps and 9 bps apiece to close at 12.9% and 13.4% W-o-W respectively.
Considering the current level of liquidity in the system, we expect bond yields to trend upward in the coming week baring any major buying interest from off-shore investors.

Please see indicative FGN Bonds details below:

BondTTMOffer (%)Coupon RateImplied Price (N)
Feb-20212.5015.54104.55
Jul-21313.4014.50102.71
Jan-22413.3516.39108.57
Mar-24613.4014.20103.11
Jan-26813.3012.5096.18
Mar-27913.4016.29114.64
Jul-341613.2012.1593.01
Mar-361813.2512.4094.19
Apr-371913.2016.25121.01

Rates are valid till 1:45pm today (04-Jun-2018)

 *Please note that the minimum subscription for bonds is N20m.

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