By Afrinvest Research,
FGN Bills Market Update: Flour Mills Commercial Paper offers 14.75% Yield; Offer Closes on Wednesday
Last week, the Treasury Bills (“T-Bills”) market reversed its bullish performance following sell-offs across all tenors driven by tight system liquidity (N100.0bn short as at Thursday). Consequently, average yield across all tenors appreciated 141bps W-o-W to close at 14.6% on Friday. Major sell-offs were witnessed at the short and medium end of the curve particularly the 21-Mar-19 (+118bps), 21-Feb-19 (+113bps) and 16-May-19 (+103bps) maturities.
In its customary bid to mop up excess system liquidity, the Apex bank conducted OMO auctions on all trading sessions save for Friday. A total of N550.0bn was offered across the short, medium and long-term maturities and this was met with a total subscription of N643.2bn indicating a bid-to-cover ratio of 1.2x. In line with the trend witnessed the previous week, the short and long-term instruments were oversubscribed with a bid-to-cover ratio of 1.6x and 1.4x respectively due to more attractive yields relative to the secondary market instruments. On the other hand, the medium-term instrument did not enjoy much of investors’ participation with a bid-to-cover ratio of 0.3x (N140.0bn offered vs. N47.4bn subscription).
This week, the CBN will be conducting a Primary Market Auction (“PMA”) on Wednesday where a total of N153.4bn worth of maturing T-Bills will be rolled over the 91- (N3.4bn), 182- (N10.0bn) and 364-day (N140.0bn) tenors. Please see below our PMA expectations:
Furthermore, we expect to see buying interests in the secondary market ahead of the general elections on the back of a buoyant system liquidity from OMO and T-Bills maturities worth N629.9bn and N153.4bn respectively as well as bond coupon payments worth N47.1bn. However, we expect the CBN to sustain its aggressive OMO issuances to tighten liquidity levels. Investors are advised to position in attractive OMO bills (short and long-term maturities) as well as selected secondary market bills.
FGN Bonds Market Update: Bullish Run Sustained
Last week, buying interests particularly by offshore investors sustained the bullish run witnessed in the bonds market at the previous trading sessions. Consequently, average yields across all tenors declined by 6ps W-o-W to close at 14.8% on Friday. Major buying interests were witnessed at the shorter-end of the curve – 22-Mar-19 (-58bps), 12-Apr-19 (-34bps) and 14-Feb-20 (-21bps) maturities.
Investors are advised to cherry pick and take position in bonds trading at a discount and with attractive yields across the curve.