By Afrinvest Research / Header Image Credit: HyNaija Last week, the Nigerian Treasury Bills (“NT-Bills”) secondary market activity reversed its bearish stance from the previous week as a result of the sustained demand by local investors. Demand in “NT-Bills” intensified as unfilled bids from the Primary Market Auction (“PMA”) and maturities from OMO bills trickled into the secondary market. Thus, average yield was pressured as it settled at 10.9% W-o-W relative to the average yield at the OMO market which settled 13.3% W-o-W. In last week’s T-Bills Primary Market Auction (“PMA”), the CBN successfully offered N125.2bn worth of instruments across 91-, 182-and 364-Day at respective stop rates of 7.80%, 9.00% and 10.00%. In line with our expectation, the auction recorded an oversubscription across all tenors, albeit, investors demand for the short tenor bill surpassed other maturities as the 91- Day bill recorded 13.3x oversubscription while the 182- and 364-Day bills recorded an oversubscription of 4.5x and 4.1x respectively. Please see a detailed summary in the table below: Auction Date 13-Nov-19 13-Nov-19 13-Nov-19 Allotment / Issue Date 14-Nov-19 14-Nov-19 14-Nov-19 Tenor 91-Day 182-Day 364-Day Offer Amount (N) 4,384,180,000 12,920,900,000 107,938,478,000 Total Subscription (N) 58,431,175,000 57,853,312,000 439,700,091,000 Allotment (N) 4,384,180,000 12,920,900,000 107,938,478,000 Range of Bid Rates (%) 7.0000 – 10.5000 8.0000 – 13.0000 9.0000 – 13.2000 Stop Rates (%) 7.7998 9.0000 10.0000 Previous Stop Rates (%) 9.4999 10.4500 11.5000 Bid-to-Cover Ratio 13.3x 4.5x 4.1x Allotment Ratio 0.1x 0.2x 0.2x In a bid to mop liquidity from maturities last week, the Apex Bank also sold OMO bills worth of N253.8bn to the Foreign Investors and Banks across the 82-, 173- and 362-Day tenors. There was an undersubscription across the short and medium dated bills at (0.3x) and (0.2x), while the 362-Day bill recorded an oversubscription of (1.2x) respectively. Consequently, the market was cleared at 11.50% and 11.69%and 13.30% respectively. Going into the week, we expect to see an improvement in system liquidity (N198.8bn short as at Friday) as N352.0bn worth of OMO maturities would hit the financial system. Consequently, we expect NT-Bills rates to decline further due to inability of the most investors to re-invest their maturing OMO bills. We expect the CBN will sustain its weekly OMO auction to mop up excess liquidity. Investors are therefore advised to take advantage of medium to long term NT-Bills or invest in short dated FGN Bonds which provides more attractive yields. FGN Bonds Market Update: Bullish Momentum Sustained as Average Yield Dips 66 bps W-o-W Similarly, the domestic FGN bonds market extended its bullish run as average yield slipped 66 bps on the back of sustained investor’s interest. The market continued to enjoy buying interest as investors continue to take position, especially in the attractive short dated bond instruments. As a result, average yield settled at 12.3% W-o-W. The 13-FEB-20 (-462bps) instrument enjoyed the most buying interest, trailed by 17-MAR-27 (-112 bps) and 22-JAN-26 (-83 bps) respectively. On the flip side, the 18-APR-37 (+3bps) suffered the most selloff. This week, the Debt Management Office would be re-opening Instruments worth N150.00bn across 5- (N50.00bn), 10-(N50.00bn), 30-Year (N50.00bn) tenors through a Primary Market Auction. Please see details of the auction below: BOND 12.75% FGN APR 2023 12.75% FGN APR 2029 12.75% FGN APR 2049 (5-Yr Re-opening) (10-Yr Re-opening) (30-Yr Re-opening) Term to Maturity 3 Years, 5 month 9 Years, 5month 29 Years, 5 Months Offer Amount (N) 50,000,000,000 50,000,000,000 50,000,000,000 We anticipate a sustained bullish momentum in the bonds market as investors continue to seek alternatives to reinvest maturing OMO bills. Thus, investors are advised take advantage of the short-term bonds (TTM of 2-3 years) due to their higher yields relative to long term NT-Bills.

November 18, 2019/IMFBlog

By IMFBlog

Rock bottom global interest rates have been a boon for so-called frontier-market countries, which have been able to borrow cheaply to finance their development needs. But there can be too much of a good thing: countries that don’t put the money to good use may have trouble servicing their loans and find themselves at risk of default.

As the Chart of the Week shows, hard-currency bond sales by frontier issuers—countries such as Angola, Belarus, Ecuador, and Pakistan—are poised to rise to $38 billion this year, close to the record set in 2017. Over the five years to mid-2019, the total stock of frontier hard-currency debt tripled to $200 billion.

For some countries, overseas debt represents a growing share of financial resources. The stock of hard-currency bonds for the median frontier borrower has grown to 7 percent of GDP and almost half of gross reserves, from 3 percent of GDP and 20 percent of reserves in 2014. A broader group of low-income developing countries that are having trouble servicing their debt, or are at high risk of debt distress, has doubled since 2013 to 43 percent. Should global interest rates rise, these countries will find it even harder to service their overseas obligations—an issue highlighted in the IMF’s latest Global Financial Stability Report.

That is why frontier markets should make it a top priority to contain debt-related vulnerabilities. Countries at high risk of distress should avoid borrowing from private lenders (as opposed to advanced-economy governments that lend to low-income countries at a discount.) And they should focus on financing projects that are likely to generate high returns. Countries should also strive to improve their ability to borrow from domestic lenders and strengthen management of public investments.

With the right safeguards, frontier economies can take advantage of low-cost, hard-currency loans to improve long-term growth prospects and raise living standards for their citizens.

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