Tuesday, August 01, 2017 11.50AM / Meristem Research
Issue on Offer/Summary
The Central Bank of Nigeria (CBN) is scheduled to hold a Treasury Bills (T-Bills) Primary Market Auction on Wednesday, the 2nd of August, 2017.
T-bills worth NGN229.14bn will mature in 91-day (NGN29.14bn), 182-day (NGN80.00bn) and 364-day (NGN120.00bn) instruments. The CBN is expected to auction an equal amount in 91-day, 182-day and 364- day instruments respectively.
Outlook on Yields /Advised Stop Rates
The average yield on Treasury bill instruments since the last Primary Market Auction (PMA) on the 19thof July 2017, has advanced by 0.07%, to settle at 18.98%, as at the 31st of July, 2017.
The 1M instrument recorded a significant yield decline of 3.49% while the 6M and 9M recorded respective declines of 0.22% apiece. However, in the period under review, the 3M (+4.27%) and 12M (+0.03%) were the only instruments with yield advancements.
All instruments offered at the last CBN auction were oversubscribed, recording bid-to-cover ratios of 1.04x (91-day), 1.03x (182-day) and 1.74x (364-day) respectively.
The 364- day instrument remains the most attractive instrument on offer, recording a subscription of NGN254.24bn, compared to the initial offer amount of NGN120.00bn, and the eventual allotment of NGN145.96bn.
The 91-day and 182-day treasury bills were also oversubscribed; however, they recorded lower subscription levels of NGN33.61bn and NGN27.43bn, compared to the offer amount of NGN29.14bn and NGN80.00bn respectively.
The Monetary Policy Committee (MPC) in the fourth meeting of the year, held on the 24th and 25th of July 2017, resolved to retain all policy variables. As such, we do not expect to see a deviation from the current trend in the fixed income space.
Also, following a 16-day bullish run, the Nigerian equities market has taken a bearish stance after peaking at a year-to-date (YtD) return of 38.59% on Thursday the 27th of July 2017.
On the back of these, we expect the stop rates to remain close to the levels at the last auction. We therefore advise rates with the dual purpose of achieving the best possible yields, as well as ensuring the success of the bid. The advised stop rates for the respective instruments are listed below:
91-Day NGN36.79bn 13.30% - 13.50%
182-Day NGN39.18bn 17.00% - 17.20%
364-Day NGN129.00bn 18.40% - 18.60%
Investing through Meristem Wealth Management Limited
Meristem Wealth Management Limited charges a transaction fee of 0.25% of the principal amount invested, and there will be three (3) days prior notification before maturity for all Treasury Bills investments.
The income from investing in T-Bills is tax-free, so interest received is not subject to withholding tax and you will receive an immediate Investment confirmation letter for the Treasury bills.
Also, note that the T-Bills certificates can be used as collateral for securing loans.
The T-bills Primary Auction bid holds twice in a month (i.e. every other Wednesday). The above likely stop rates are our estimates and might not necessarily hold true, as the final decision always lies with the CBN based on the auction process.