By Chima Nwokoji | Lagos
The Federal Government of Nigeria (FGN), through the Debt Management Office (DMO), will be conducting a bond auction today.
Also in the new week, T-bills worth N161.87 billion will be auctioned by CBN via the primary market; viz: 91-day bills worth N1.10 billion, 182-day bills worth N0.92 billion and 364-day bills worth N159.85 billion.
Dealers from Cowry Research expects the stop rates of the 364-day to rise slightly.
Meanwhile, the total amount of FGN bonds on offer is expected to be between N360 billion and N400 billion from four issues.
The instruments include four reopening issues (February 2028, April 2032, April 2037 and April 2049).
Analysts expect the marginal rates across tenors to hover around their current levels.
This outlook is hinged on robust system liquidity, spurred by coupon payments (c. N185.82 billion before the auction date), expected to prompt higher investors’ demand. However, Meristem fixed income market analysts said, “we do not rule out a marginal uptick in the rates of long-dated instruments owing to investors’ expectation of a Monetary Policy Rate hike at the Monetary Policy Committee meeting.
“The sentiment in the secondary market has increased negligibly since the previous primary market auction, as the average bond yield increased to 13.07 percent as of March 16 (1bps higher than the last auction date).
“In the near term, we expect the sentiment to persist as investors continue to trade sideways.”
At the last Primary Market Auction (PMA) held in February 2023, demand for the instruments on offer remained strong. While subscription on the April 2032 instrument was lower by 14.42 percent month-on-month (MoM), the total subscription at the auction was 23.34 percent MoM higher than the last auction (N993.11 billion vs N805.17 billion in January).
Analysts at Meristem Research said the increase in subscriptions was majorly driven by robust system liquidity (c.N456.91 billion as of the auction date).
Equally, total allotment rose by 9.51 percent MoM to N770.56 billion (vs N703.62 billion in the previous auction).
Consequently, the total bid-to-cover ratio was 1.29x (vs 1.14x in January). Nonetheless, the marginal rates of the 2037 and 2049 bonds increased by 10 bps each to 15.90 percent and 16.00 percent, respectively, while that of 2032 remained flat at 14.90 percent. However, the marginal rate of 2028 declined marginally by one bps to 13.99 percent, according to dealers.
Meristem’s valuation gives a fair-trading price ex coupon payment, the expected return on the bond considering its periodic interest payments and the expected return on the bond’s periodic payments.
“We analysed the issues on offer given the current yield environment, market liquidity, as well as a review of the recent past auctions, whilst also introducing market sentiment factor into our valuation, on which we advise bid yield ranges for both issues on offer,” the firm stated in a note to clients.
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