12, 2021 / 03:40 PM / by Meristem Research / Header Image
The Central Bank of Nigeria (CBN) will hold a Treasury Bills (T-Bills) Primary Market Auction (PMA) on 13th of October 2021. At the PMA, Existing T-Bills totalling NGN121.66bn (NGN5.24bn, NGN8.80bn and NGN107.62bn across the 91-day, 182- day, and 364-day instruments respectively), will mature and be rolled-over.
Outlook on Yields
At the last PMA, average stop rates trended upwards to 4.50% (vs. 4.40% at the auction on the 29th of September), driven by the rate increase on the 364-day instrument to 7.50% (from 7.20% at the last auction). Rates on the 91-day and 182-day instruments, however, remained unchanged at 2.50% and 3.50%, respectively.
We note a decline in investors' interest on the 364-day instrument, as the total subscription on the instrument weakened to NGN166.32bn (vs. NGN238.27bn in the previous auction). Consequently, the bid-to-cover ratio declined to 1.53x (vs. 1.57x). Our prognosis is that the weakened investors' subscription at the long end of the curve influenced the direction of rates.
In line with recent trends, we expect rates to remain at current levels. We opine that there is little incentive for the government to increase the rates on its domestic debts, considering its increased appetite for external borrowings.
Meanwhile, the sentiment in the secondary market has remained bearish since the last primary market auction, as average yields increased marginally to 5.35% on the 11th of October (vs. 5.31% as of the 29th of September). With the real rates of return persistently in the negative region, investors' sentiment has remained rather tepid towards the secondary market fixed income instruments. Our prognosis is that the bearish sentiment in the fixed income secondary market will persist in the near to medium term, given the current yield and policy environment.
In view of the above, our rate guidance is informed by the need to strike a balance between the goals of maximizing investment returns and having a successful bid. Thus, the recommended stop rates for the respective instruments are as follows: