Tuesday October 26,
2021 / 03:15 PM / by Meristem Research / Header Image
The Central Bank of Nigeria (CBN) will hold a Treasury Bills (T-Bills) Primary Market Auction (PMA) on 27th of October 2021. At the PMA, Existing T-Bills totalling NGN152.11bn (NGN3.17bn, NGN6.00bn and NGN140.87bn across the 91-day, 182- day, and 364-day instruments respectively), will mature and be rolled-over.
Outlook on Yields
At the last PMA, the stop rates on the 91-day and 182-day instruments were unchanged at 2.50% and 3.50% respectively. However, the rate on the 364-day instrument hinged lower (by 5bps relative to last but one auction) to 7.25%. Investors' demand was stronger at the last auction, as overall subscription was 4.05x amount offered (vs 1.56x at the last but one auction). Also, the overall bid to cover ratio improved to 2.63x (from 1.51x). We attribute the increased investor participation to the increase in the rate on the 364-day instrument to 7.30% at the last auction held in September. This supported the higher subscription to offer (4.46x from 1.56x) on the 364-day instrument.
In the coming auction, we do not expect any change in the stop rates on the 91- and 182-Day instruments from the levels they have maintained since May 2021. Our view is that the dynamics of volume of borrowing, fiscal buffer, and debt sustainability levels will continue to dictate the direction of the 364-day instrument. The increase in the foreign exchange reserve level enhanced by the recent Eurobond issuance and improving oil price supports a further reduction in the rate.
Meanwhile, the activity in the secondary market for Treasury Bills has been relatively stable. There has only been a marginal (3bps) increase in average T-Bills yields to 5.34% (vs 5.31% as at the date of the last auction. While inflation moderated further in September 2021 to 16.63% (from 17.01% in August 2021), real yield still sits firmly in the negative region. We do not expect any significant movement in yields in the near term asinflation expectations points to further moderation, and the CBN official policy rate remains stable.
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: