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Fixed Income

Daily update on Treasury Bills, Bonds, Forex, oil price and more

Daily performance of major economic indicators and highlights from tradings sessions and key statistics such as T-bills, bonds, FX rates, inflation, oil price.

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Nigerian stock exchange, All share index, Nigerian bourse, Investors, Bulls gather momentum ASI up 0.48%, gained N55.3 billion, Dangote ,MTN & Gtbank hit a home run as Nigeria’s bourse continues bullish momentum

Daily performance of major economic indicators and highlights from tradings sessions and key statistics such as T-bills, bonds, FX rates, inflation, oil price.

  • Central Bank conducts yet another OMO auction in a bid to manage excess liquidity
  • Eurobonds for oil producing countries and companies remain bearish amidst low crude prices

KEY INDICATORS

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Bonds

Risk-off sentiments on FGN Bonds continued today as the market opened the week on quiet note. Market trading volumes remained on a decline with less than N1bn executed intraday, reflecting the weak appetite for FGN bonds. Consequently, yields traded flat across the curve, with slight sell-off seen at the short-end (2020s) and mid-end of the curve (2027s & 2028s).

We expect the market to trade scantily in the interim as investors weigh-in the effects of lower global oil prices on government borrowing cost. We retain a cautious outlook on bonds with a bearish bias till the end of the year.

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Treasury Bills

Trading in the T-bills market was muted on the day as the CBN conducted an unexpected OMO auction, a divergence from the usual OMO T-bills maturity vs OMO auction trend in past sessions. We saw slight bullish sentiments on the short end of the curve, while the medium to long end of the curve traded bearish due to more supply of OMO T-bills.

The CBN sold a total of N161.08bn OMO T-bills across two maturities, 192- and 360-days, while maintaining stop rates at 13.00% and 14.50% respectively. There was no sale recorded on the 115-day maturity due to no demand on that maturity.

We expect the market to trade bearish tomorrow due to the reduced System Liquidity as well as supply expected from the T-bills PMA to be conducted later in the week.

Money Market

Money Market rates increased opening the week, off the back of outflows via the CBN’s OMO auction as well SMIS FX Wholesale Intervention conducted today. The OBB & O/N rates closed at 15.17% (from 5.83%) and 15.75% (from 6.58%) respectively. System liquidity is consequently estimated to close lower at c.N118.38bn positive.

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We expect rates to remain in double digit territory in the interim as there are no OMO maturities expected this week. However, market participants may get some respite from FAAC payments as the month draws to a close.

Patricia

FX Market

At the Interbank, the Naira/USD rate depreciated by c.0.02bps to close at N306.80/$ (spot), from N306.75/$ previously but remained unchanged at N359.81/$ (SMIS). At the I&E FX window a total of $147.30bn was traded in 303 deals, with rates ranging between N361.00/$ – N365.00/$. The NAFEX closing rate appreciated by c.0.23% to close at N363.85/$ from N364.70/$ previously.

At the parallel market segment, the cash and transfer rates both remained unchanged to close N364.00/$ and N366.50/$ respectively.

Eurobonds

Recovery in global oil prices was insufficient to provide respite for sovereign papers of oil producing countries, and the NGERIA Sovereigns were no exception. Yields on the NGERIA Sovereigns inched up further by c.7bps on the average across all the tickers on the curve. The major losers on the day were the NGERIA 21s and NGERIA 23s losing c.13bps and c.17bps respectively.

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NGERIA Corps showed continued weakness amidst low oil prices. Yield expanded the most on the SEPLLN 23s by c.25bps, while in a surprise twist yields compressed on the Zenith 19s by c.127bps.


Disclaimer

Whilst proper and reasonable care has been taken in the preparation and accuracy of the facts and figures presented in this report, no responsibility or liability is accepted by Zedcrest Capital or its employees for any error, omission or opinion expressed herein. This report is not an investment research or a research recommendation and should not be regarded as such. The information provided herein is by no means intended to provide a sufficient basis on which to make an investment decision.

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Coronavirus

How COVID-19 and low yield affect Nigeria’s pension funds

Covid-19 and low yield are conniving to rub pension fund managers of a chest-beating performance, and the pension fund investors of blissful retirement.

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How COVID-19 and Low Yield Affect Nigeria’s Pension Funds, How COVID-19 and Low Yield Affect Nigeria’s Pension Funds

Towards the end of 2019 it became evident, judging by the way interest rates were going, that pension fund managers might find it difficult to replicate prior years’ performances.

It even became more evident, when viewed against the realization that most of the assets under management by pension fund managers in Nigeria are invested in financial instruments that derive their benefits or even existence from the yield curve.

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As if that was not enough challenge, and to add insult to injury, out of nowhere and without any notice, came coronavirus. Today, those two, Covid-19 and low yield are conniving to rub pension fund managers of a chest-beating performance and the pension fund investors of their hope for a long-lasting and blissful retirement.

Already, the impacts of those two are being felt by pension funds, not only in Nigeria but the world over. My pension fund account is yet to recover from the 18% drop it suffered in March 2020.  Although Nigerian pension funds recorded positive returns during the first 4 months of the year, such returns are nothing to write home about, when compared to prior years’ returns.

According to an analysis conducted by Quantitative Financial Analytics, the RSA category of Nigerian pension funds generated an average of 1.64% on a year to date basis, as at April 30th, 2020, while the Retiree fund category generated an average return of 2.96%. Compared to a similar period in 2019, RSA funds generated an average return of 3.46% while the Retire fund category had an average of 4.13%. For the year to date, April 30th, 2020, Pension fund manager, Veritas Glanvills (VG) recorded the highest return in both categories of 4.24% and 5.38% respectively and a couple of funds made losses.

GTBank 728 x 90

READ MORE: Nigerian Pension Funds Continue to Gather Positive performance, though in Trickles

The grass is not greener on the other side

Although those numbers are not what pension fund investors expected or hoped for, they are quite impressive when compared with what is happening elsewhere in the World. According to the Financial Times Adviser (FT Adviser), “the average pension fund fell by 15% in the first quarter of this year” in the UK, which represents “the worst quarterly performance on record”. In the United States of America, the story is the same. According to the Washington Post which described COVID-19 pandemic as a meltdown, “This meltdown has exposed the fragility of public pension systems in the United States”. In the wake of the pandemic, “Moody’s Investors Service estimated that the stock market sell-off vaporized $1 trillion of value from public pension portfolios or about 21 percent of the assets that pay for the retirement plans of state and local employees”.

In another reportorial, the NJ Spotlight, (a New Jersey Newsletter in the US), noted on March 26th, 2020, that Covid-19 hammered public pension workers to the extent that the pension system shed $6 billion since January 1st. S&P Ratings also estimated that, in the first quarter of 2020, “U.S. public pension funds in aggregate lost a cool $855 billion”.

Those underscore the bleak future facing pension fund industries all over the World and the need for Nigerian pension fund investors to be thankful with the 1% average gain that Nigerian pension fund managers were able to generate.  It is hoped that as the fight to curb or eradicate Covid-19 rages on successfully, that the performance will improve rather than get eroded.

(READ MORE: Analysis: Your pension fund is worth less)

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Pension funds,How COVID-19 and Low Yield Affect Nigeria’s Pension Funds

Pension funds

Patricia

With that said, here are the 5 best pension fund performers in Nigeria as at April 30th 2020:

Retirement Savings Account, RSA, category:

Best Performing Fund: 

Name of Fund: Veritas Glanvills Pensions RSA Pension Fund 2

YTD Performance %:  4.24%

YTD Gain per unit:  N0.13

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READ ALSO: Sukuk is ‘new love’ for Pension funds as total asset value hit N7.9 trillion

Second Best Performing Fund: 

Name of Fund: AIICO Pensions RSA fund 2

YTD Performance %:  3.75%

YTD Gain per unit:  N0.14

3rd Best Performing Fund: 

Name of Fund: OAK Pensions RSA Fund 2

YTD Performance %:  3.31%

YTD Gain per unit:  N0.10

4th Best Performing Fund: 

Name of Fund: Premium Pensions RSA Fund 2

YTD Performance %:  2.89%

YTD Gain per unit:  N0.14

5th Best Performing Fund: 

Name of Fund: Anchor Pensions RSA Fund 2

YTD Performance %:  2.69%

YTD Gain per unit:  N0.07

(READ MORE:Is the pension asset just another cookie jar?)

PENCOM, Pension Funds, Analysis: Your pension fund is worth less, PenCom dissolves interim management committee for First Guarantee Pension, appoints new board, How COVID-19 and Low Yield Affect Nigeria’s Pension Funds

Retirement Savings Account, RSA, category

Best Performing Fund: 

Name of Fund:  Veritas Glanvills Pension Retiree Fund 4

YTD Performance %:  5.38%

YTD Gain per unit:  N0.19

Second Best Performing Fund: 

Name of Fund: Radix Pensions Retiree fund 4

YTD Performance %:  5.17%

YTD Gain per unit:  N0.11

3rd Best Performing Fund: 

Name of Fund: Fidelity Pensions Retiree Fund 4

YTD Performance %:  4.27%

YTD Gain per unit:  N0.14

4th Best Performing Fund: 

Name of Fund: ARM Pensions Retiree Fund 4

YTD Performance %:  4.21%

YTD Gain per unit:  N0.16

5th Best Performing Fund: 

Name of Fund: OAK Pensions Retiree Fund 4

YTD Performance %:  3.94%

YTD Gain per unit:  N0.15


CSL Stockbrokers Limited, Lagos (CSLS) is a wholly-owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.

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FEATURED

Pension Fund Managers dump Nigerian Treasury Bills

Pension fund managers redeemed treasury bills worth N512 million Naira in the two months combined but did not invest any additional kobo into treasury bills within the same period.

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Pension funds, Treasury Bill Investment: Ghana Vs Nigeria, Further rate decline expected as N405 billion worth of treasury bills mature , CBN’s N225.45 billion T-bills auction records oversubscription, as rate fall below 5% , Nigeria’s 364-day treasury bills falls to 3.84% per annum

Analysis of the recently released summary of Pension Fund Asset data for the first two months of 2020 by the Pension Commission of Nigeria has shown that pension fund managers are no longer in love with Treasury Bills like they used to be in the past.

Time was when fund managers allocated much of their assets to treasury bills, but that seems to be waning as yields on treasury bills head towards subzero.

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According to the analysis, pension fund managers redeemed treasury bills worth N512 million in the two months combined but did not invest any additional kobo into treasury bills within the same period.

READ ALSO: Nigeria’s pension contributors add N186.43 billion to pension asset

Prior to this event, the pension fund had invested a combined sum of N1.88 trillion into treasury bills, representing 18.4% of total pension fund assets.

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With that development, pension fund managers allocation to treasury bills now stands at 13%. This is about the first time, in over 5 years that PFM’s are shying away from treasury bills.

The love seems to have shifted to bank placements which attracted additional investment if N420 million from pension fund managers. FGN Bonds continue their camaraderie with pension fund managers as they pumped additional N352 million into FGN bonds in January and February, combined. This seeming reallocation to bank placements is indicative of pension fund managers’ desire to hold on to their cash, while waiting and hoping that yields will trend up anytime soon.

READ MORE: Pension fund multi fund structure performance

Yield Analysis: Fund managers who are out to seek ways to generate positive alpha or returns for their investors are running away because of the low treasury bill yields. The last Treasury Bill option that was conducted on May 13th, 2020, had stop rates of 2.5%, 2.85% and 3.84% for 91-day, 182-day and 364-day treasury bills respectively. Those rates were not enticing enough for the fund managers.

Strong Market Demand: This does not mean that Nigerian Treasury Bills are no longer in demand because, according to the NTB Auction Results sheet of May 13th, 2020, all the three tenors of treasury bills were oversubscribed.

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While the 91-day Treasury Bill had N4,384,80,000 on offer, it attracted a total subscription of N22,334,588,000, the 182-day tenor which had N12,920,900,000 on offer saw N41,194,993,000 being subscribed for, while investors bid N102,030,671,000 for the 364-day tenor which had N16,536,720,000 on offer.

Patricia

READ ALSO: Pension contributions from Nigerians under 30 dwindling at an alarming rate

Pension Fund Asset Allocation: All said and done, FGN bonds continue to be the asset type with the highest allocation from pension managers. Out of the N10.5 trillion total pension fund asset value as at February, 29th 2020, N5.6 trillion sits with FGN Bonds, while bank placements come second with an allocation of N1.48 trillion leaving Treasury Bills in the third position with an asset allocation of N1.37 trillion.

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Fixed Income

MTN Nigeria begins N100 billion commercial paper issuance today

MTN Nigeria Communications Plc proposed Commercial Paper Issuance Offer begins today and is scheduled to close on Thursday, June 4, 2020. 

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MTN Nigeria, MTN Nigeria Communications Plc. begins N100 billion commercial paper issuance today

MTN Nigeria Communications Plc has commenced its Commercial Paper (CP) Issuance (Series 1 & 2 of N50 billion each)  under its N100 billion CP issuance programme on Thursday.

In a statement issued by the company and seen by Nairametrics, the telco explained that the issuance has a tenor of 180 days (CP 1) and 270 days (CP 2) with a discount rate of 4.6890% – 4.8797% (CP1)  and 5.8500% – 6.000% (CP2).

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Nairametrics had reported a few days ago when the telecommunication company notified the Nigerian Stock Exchange about the issuance.

Why it matters: The issuance is important to the telco, as it intends using the proceeds to its working capital and general corporate purposes in Nigeria. This issuance under the CP Programme represents MTN Nigeria’s debut in the domestic debt capital market.

READ ALSO: Bond: Lagos to raise N100 billion for infrastructural development

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Details: Issuer;  MTN Nigeria Communications Plc.

Arranger: Chapel Hill Denham Advisory Limited.

Tenor: 180 days (commercial paper 1)     270days (commercial paper 2).

Discount Rate: 4.6890% – 4.8797% (commercial paper 1)    5.6078% – 5.7455% (commercial paper 2).

Implied Yield: 4.8000% – 5.0000% (commercial paper 1)   5.8500% – 6.0000% (commercial paper 2).

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Offer Open Date: Thursday, May 28, 2020.

Patricia

Offer Close Date: Thursday, June 4, 2020.

READ MORE: Nigerian Breweries set to raise N15bn through CP issuance

Settlement Date: Friday, June 5, 2020.

Minimum subscription: N1 million.

Issuance size: N100 billion (series 1 & 2 commercial paper issuance N50billion each).

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Issuer Rating: Aa+ (Augusto); AA (GCR).

Tax consideration: Free and clear of withholding Taxes.

(READ MORE: Economy: Local corporates taking advantage of the low yield environment  )

MTNN is the leading telecommunications operator in the largest telecoms market in Africa. The company is the largest mobile operator and undisputed market leader in Nigeria, as measured by total mobile subscribers (c. 70 million), active data users (c. 26.8 million), revenue (almost 50% of industry), and profit pool.

MTN, MTN Nigeria Communications Plc. begins N100 billion commercial paper issuance today

MTNN is well-positioned for the long term, with its unmatched investments in its infrastructure – most expansive 2G, 3G, and 4G network, largest fibre network (c. 29,000km) that spans across Nigeria, largest physical and digital distribution platform, and wide range of spectrum holdings – and the exciting market opportunity Nigeria brings.

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MTNN is rated Aa+ by Agusto & Co. which reflects the company’s history of strong financial performance – record revenue in excess of N1 trillion (largest revs by a listed corporate), stable and healthy operating profit metrics (+53% EBITDA margin), comfortably low leverage (0.4x Net Debt/EBITDA, 10.8x interest coverage) that is predominantly local currency, and strong free cash flow.

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