| Bonds & Fixed Income |    1522 VIEWS  |
| Bonds & Fixed Income | |
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Tuesday,
January 25, 2022 / 12:05 PM / by Meristem Research / Header Image
Credit: Filmfoto;
iStock
Offer Summary
The Central Bank of Nigeria (CBN) will hold a Treasury
Bills (T-Bills) Primary Market Auction (PMA) on the 26th of January 2022. At the
PMA, Existing T-Bills totaling NGN129.33bn (NGN2.68bn, NGN3.54bn, and
NGN123.11bn across the 91-day, 182- day, and 364-day instruments,
respectively), will mature and be rolled over.
Outlook on Yields
At the first PMA in the year 2022, stop rates on the
91-day and 182-day instruments remained largely unchanged at 2.50% and 3.44%,
respectively (vs 2.49% and 3.45%, respectively at the previous auction).
However, the rate on the 364-day instrument increased by 60bps to 5.50% from
the last auction. We note the improvement in investors' demand driven by high
system liquidity at the time. Thus, overall subscription advanced by 37.45%
compared to last auction's record, and overall bid to cover ratio increased to
1.96x (from 1.56x).
In the next auction, we do not expect any significant
movement in the stop rates for the 91- and 182-Day instruments from the range
they have been for a while. For the 364-day instrument, however, which has
enjoyed the most interest from both investors and the government, the stops
rates will be determined by a mix of factors. On the one hand, the higher
system liquidity resulting from coupon credits and money market maturities
could keep the stop rate on the instruments low. On the other hand, we consider
a higher rate a necessary incentive for the government to raise the higher
amount being offered on the 364-day instrument (NGN123.11bn). We think this
factor would keep rates on the instrument higher, albeit marginally, at this
current auction.
So far in 2022, the secondary market for Treasury
Bills has been bearish. Average yield has increased from 3.95% (as at 31
December 2021) to 4.34% (as at 24 January 2022). This movement has been largely
due to weak demand across different maturities on the T-Bills curve. In the
short term, we do not expect any significant deviation from this trend,
especially given the expectation of a higher rate on the 364-day instrument at
the PMA.
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:
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