The Central Bank of Nigeria (CBN) will hold a Treasury Bills (T-Bills) Primary Market Auction (PMA) on 28th of April 2021. At the PMA, Existing T-Bills worth NGN11.39bn, NGN6.00bn, and NGN71.07bn across the 91-day, 182-day, and 364-day instruments, will mature, and will be rolled-over.
Outlook on Yields
In line with our expectation, the last PMA saw stop rates on the 91 and 182-day instruments unchanged from previous levels, while stop rates on the 1-year bill climbed by 100bps to 9.00%. Notably, bids (i.e. investor demand) were skewed in favor of the 364-day bill, with bid-to-cover ratio rising to 1.65x (from 1.37x at the previous auction). In contrast, bid-to-cover ratios on the 91 and 182-day offers fell to 1.27x and 1.58x respectively (from 3.27x and 3.93x at the previous PMA). As we had earlier noted, the FGâ€™s preference for the 364-day paper continued, with the DMO finally allotting 2.69x (NGN132.12bn) the initial offer size of NGN49.14bn. This, in our view is symptomatic of sustained pressure on government finances, despite a relatively better oil price environment. As a downside, we note the more recent developments in the oil market, where concerns about demand recovery given a worsening coronavirus situation in India have precipitated a drop in crude oil prices.
Broadly, bullish sentiments have dominated the secondary market for T-bills since the last auction, with average yields retreating by c. 43bpsto 3.61% (as at April 23rd , 2021), from 4.04% on the date of the previous auction. This suggests that investors may have rushed to the secondary market to fill unmet demand from the PMA.
The major challenge for most investors remains having to endure negative real rates of return, as headline inflation continues its ascent (March 2021: 18.17% YoY). At the upcoming auction, although we expect investors to continue to demand better rates, we think the status quo would be maintained â€“ with stop rates on the 91 and 182-day offers unchanged, and a slight uptick to stop rates on the 364-day instrument.
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: