Ahead of Next Treasury Bills Auction Scheduled for 26th of May 2021


Tuesday, May 25, 2021 / 07:30 PM / Meristem Research / Header Image Credit: Bokk Keeper

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Offer Summary

The Central Bank of Nigeria (CBN) will hold a Treasury Bills (T-Bills) Primary Market Auction (PMA) on the 26th of May 2021. At the PMA, existing T-Bills worth NGN24.18bn, NGN19.16bn, and NGN19.84bn across the 91-day, 182-day, and 364-day instruments, will mature, and be rolled over.


Outlook on Yields

At the last PMA, stop rates on the 182 and 364- day instruments remained unchanged from the last auction while that of the 91-day instrument increased by 25bps to 2.50%. Although average bid-to-cover ratio fell to 1.38x from 1.63x, investor demand remained robust as subscriptions significantly outweighed amount offered. The relatively lower bid-to-cover ratio was thus due to low supply (sales) of instruments on the part of the government.


Meanwhile, headline inflation rate for April 2021 moderated slightly to 18.12% due to food disinflation, however, it remains well above T-Bills yields and therefore an incentive for investors to demand higher yields at the next PMA. We however observed a moderation in investor appetite for higher yields at the last auction which may imply waning investors' influence due to limited options. Thus, we are not very optimistic of higher rates (relative to those at the last auction) at the next auction.


In the secondary market for treasury instruments, investors mood remained bearish as average T-Bills yields rose from 5.13% recorded on the date of the last auction to 5.55% (as at 24 th May 2021). Negative real returns continue to dampen investors' appetite for treasury bills in the secondary market, especially as yields in the secondary market remain well above previous PMA rates. Given our expectation for rates at the next PMA, we do not expect secondary market yields to be significantly influenced by the outcome of the next auction as investors seek higher returns from investment grade corporate instruments.


In consideration of the above, we advise rates which aim to achieve a balance between the goal of maximizing investment returns and that of having a successful bid. The recommended stop rates for the respective instruments are listed below:

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