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Debt Securities

DMO announces May 2021 FGN savings bond offer for subscription

The DMO has announced the offer for subscription of the May 2021 Federal Government Savings Bond to investors.

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The Debt Management Office (DMO), on behalf of the Federal Government has announced the offer for subscription of the May 2021 Federal Government Savings Bond to investors.

This disclosure is contained in a circular issued by the DMO on May 3, 2021, and can be seen on its website noting that there are 2-year and 3-year savings bonds.

A breakdown of the bonds shows that the 2-year FGN savings bond will be due on May 12, 2023, at 7.753% per annum and the 3-year FGN Savings Bond which will be due on May 12, 2024, at 8.753% per annum.

The offer has an opening date of May 3, with a closing date of May 7, while the settlement date is May 12, with the coupon payment dates as follows: August 12, November 12, February 12 and May 12.

The circular also states that the unit of sale is N1,000 per unit subject to a minimum subscription of N5,000 and in multiples of N1,000 thereafter, subject to a maximum subscription of N50,000,000

It also states that the interest is payable quarterly with the redemption expected to be in bullet payment on the maturity date.

In case you missed it

It can be recalled that last month, the DMO on behalf of the Federal Government, offered for subscription April 2021, Federal Government Savings Bond to investors.

The offer consisted of a 2-Year FGN Savings Bond due April 14, 2023, at 5.522% per annum and a 3-year FGN Savings Bond due April 14, 2024, at 6.522% per annum.

The opening date was April 6, 2021, with the closing date on April 9, 2021, settlement date on April 14, 2021, and the coupon payment dates on July 14, October 14, January 14, and April 14.

Chike Olisah is a graduate of accountancy with over 15 years working experience in the financial service sector. He has worked in research and marketing departments of three top commercial banks. Chike is a senior member of the Nairametrics Editorial Team. You may contact him via his email- [email protected]

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Debt Securities

CBN’s N88 billion treasury bill auction yesterday was oversubscribed by 174.62%

At the end of the auction, one-year treasury bills sold for 9.75% per annum.

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Some experts are uncertain of what to expect from money markets in H2 2020

The Central Bank of Nigeria’s (CBN) Treasury Bills Auction worth N88.46 billion was oversubscribed by 174.6% yesterday. The stop rates for the 91 and 182-day tenor bills fixed at 2.00% and 3.50% respectively.

The stop rate of the 364-day tenor bill was pegged at 9.75% according to the result of the NTB auction.

The apex bank recorded N242.94 billion in total subscription, as the treasury bill auction was oversubscribed by 174.62%, however, T-bills worth N88.46 billion were provided across the 91-day, 182-day and 364-day tenors at the primary auction.

At the end of the auction, bills worth about N129.46 billion were allotted to investors.

READ: CBN’s N154.38 billion T-bills auction over subscribed by 46% as rates fall marginally  

Demand for Treasury Bills Surge

Demand for Treasury Bills has surged in recent months as yield-hungry investors scamper away from equities into risk-free government securities. While 2020 was marred with ultra-low interest rates on fixed income securities like Treasury Bills, yields have spiked in recent weeks to the surprise of investors.

With inflation rate galloping past 18% the pressure to flee the naira appears to have forced the central bank to revise its monetary policy strategy, allowing rates to rise.

READ: CBN, First Bank on collision course over removal of MD/CEO

Summary of the NTB Auction today

The 91-day bill was undersubscribed by 7.51% as it received a subscription of N10.53 billion, against an initial offer of N11.39 billion.

The 182-day tenor bill on the other hand performed well, as it was oversubscribed by 50.87% with an impressive subscription of N9.05 billion which was received yesterday, against an offer of N223.35 billion.

The 364-day tenor bill recorded the highest subscription with an oversubscription rate of 214.25%, as investors’ total subscription was valued at N223.35 billion, relative to an initial offer of N71.07 billion.

READ: U.S Government makes a premium selling Bitcoin

The breakdown of the allotment

At the close of the auction yesterday, about N7.19 billion of the 91-day tenor bill was allotted, lower than the initial offer of N11.39 billion, while N6 billion worth of the 182-day bill was allotted to investors.

With the settlement for the bill pegged for the 29th of April 2021, about N116.27 billion of the 364-day tenor bill was also allotted to investors.

The oversubscribed bills confirm the huge demand for risk-free government securities amidst a dearth of sizeable investment funds.

Jaiz bank

READ: Bank of England considers digital currency

What you should know

  • The treasury bills were auctioned in a Dutch auction structure, as the price of the offerings were set after bids were received to determine the highest price at which the total offering could be sold.
  • This provided investors with the opportunity to place bids for the amount they were willing to buy in terms of quantity and price.
  • The range of bids was placed at 1.99 and 10.00 for the 91-day tenor; 3.49 and 10.00 for the 182-day tenor, 8.8943 and 15.00 for the 364-day tenor.

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Debt Securities

Nairametrics economic indicators and market recap

This week, system inflows should improve driven by inflows from FAAC (NGN681billion), FGN Bond coupons (NGN160billion), NTB (NGN88billion) and OMO bills (NGN10billion).

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The highlight of the previous week was the monthly bond auction where the DMO sold more than its planned offer at higher rates than in March but leaned heavily on non-competitive bids. Elsewhere, financial market conditions remained tight pushing interest rates higher while the Senate nodded along to some FX loans as reserves slackened.

Money markets remained tight, pushing front end yields

Interbank rates receded from the elevated levels (30%) of the prior week, however, they still remained high at 15-16% levels relative to single-digit levels over Q1 2021. As such bank borrowing from the CBN’s standing lending facility (SLF) tracked higher with cumulative net exposures of NGN678billion last week vs. NGN332billion in the prior week. This suggests that the combination of an end to the era of large monthly OMO maturities in March and CBN’s switch to CRR as its default liquidity tightening tool has resulted in tighter liquidity levels across the banking system. As a result, placement rates for large institutions have pushed past the 10% mark from 0-1% at the start of 2021. This cash strain continued to underpin sell-offs across all segments of the treasury bills market: NTB yields: +19bps w/w to 4.99%, OMO bills: +52bps w/w to 7.7%, May 31 SPEBs: +36bps w/w to 6.54% as banks looked to fund their liquidity positions.

Figure 1: Naira Yield Curve

Source: FMDQ, NBS

In the secondary market, FGN bond yields tracked higher (+15bps w/w) reflecting a re-pricing post the bond auction but the market looked a bit like some buying had returned with limited selling pressures. On the corporate space, MTN closed out on its debut Naira bond sale, clearing NGN115billion at 13% for 7-year money.

DMO relies on non-competitive bids to meet borrowing target

At the April bond auction where the Debt Management Office (DMO) had NGN150billion worth of bonds to sell, demand came in at 1.8x relative to the offer, less robust than in March (2.2x). However, the market was unaware that the DMO had lined up NGN117billion worth of non-competitive bids (78% of its offer) which it deployed to full effect, allowing a total sale of NGN274billion. The existence of the large NCBs, which were deployed to the 2027s and 2035s, implied that allocations went contrary to my expectations for over-allotment of these papers and allowed the DMO the luxury of over-allotment to the 2045s.  In terms of clearing rates, the DMO, as I suspected, allowed the 2027s and 2035s rise to 12.25 and 13.34% and elected to clear the 2045s well under 14%. As I noted after January’s auction, plans to tap unclaimed dividends and dormant account balances implied that the DMO potentially has a large amount of NCBs over 2021 to meet borrowing targets. We are only in April and the YTD number is the third highest print since Nigeria commenced monthly bond auctions in 2008.

Figure 2: Non-competitive bids

Source: DMO 2021* (Jan-Apr)

FX reserves dip, Senate approves FX loans but no light on Eurobonds

After three weeks of consecutive increases, Nigeria’s FX reserves slid 0.4% to USD35.1billion. The Naira remained range-bound across most segments: Official (NGN379/$), Nafex (NGN410/$) and parallel (NGN482.5/$). During the week, the Senate approved two sets of loans: USD1.5billion (World Bank) and EUR995million from the Brazilian Export-Import Bank (BNDES). The World Bank loan is not new as this is exactly the facility approved in December for Nigerian states (so not for FGN budget support) so the Senate approval suggests that actual deployment is imminent and per foreign borrowing requirements, the procedural senate green light is required. The BNDES loan is for agriculture mechanization. These two facilities should provide a momentary boost to FX reserves but the key to Naira outlook remains a potential Eurobond sale.

This week (April 26-30, 2021)

This week, system inflows should improve driven by inflows from FAAC (NGN681billion), FGN Bond coupons (NGN160billion), NTB (NGN88billion) and OMO bills (NGN10billion). The improved liquidity conditions should drive moderation in funding pressures and by extension interest rates across money markets. At the NTB auction on Wednesday, where the CBN, on behalf of the DMO, will look to roll over NGN88billion in NTB maturities, my suspicion is that we are likely to see the 1-yr paper achieve parity with stop rate for the 1-yr OMO bill level (10%), in tandem with the gradual pattern towards convergence observed in recent weeks. In the corporate space, two transactions are on the market: Dangote Cement’s NGN100billion bond sale split across three tenors: 3yr, 5yr and 7yr and C&I Leasing’s NGN10billion offer.

Above-target local borrowing suggests supply slowdown likely in H2 2021

YTD, the DMO has sold NGN909billion worth of bonds. In addition, a total of NGN1.5trillion worth of NTBs has been issued which, adjusted for maturities thus far of NGN1.02trillion, implies that on net basis, DMO has conducted NGN488billion of fresh borrowings on the front end of the curve. As 82% of these fresh NTB sales (NGN399bilion) pertain to 1-year papers, it appears to me that the DMO has effectively raised NGN1.3trillion on aggregate relative to its NGN2.1trillion target for domestic borrowings. This translates to a monthly borrowing run rate of NGN274billion for bonds, well ahead of the implied NGN216billion run rate. Adjusting what’s left to borrow over the rest of 2021 for a likely Sukuk bond sales of NGN200-250billion, my suspicion is that actual monthly issuance rates will have to slow down to under NGN150billion at some point possibly over Q3 2021 when the DMO views it has a clear line of sight to its target NGN2.1trillion. Under that circumstances, depending on monetary policy which I expect to tighten aggressively either in May or July, interest rates which are now over 2019 levels are likely to peak.

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