Friday, November 10, 2017 / 4:10PM/ Meristem Research
Issue on Offer/Summary
The Central Bank of Nigeria (CBN) Treasury Bills (T-Bills) Primary Market Auction (PMA) is scheduled to hold on the 15th of November 2017. T-bills worth NGN119.94bn will mature in 91-day, 182-day, and 364-day instruments accordingly, while an equal sum is expected to be issued across the same tenors. The CBN is expected to auction NGN32.44bn, NGN22.82bn and NGN64.68bn in the 91-day, 182-day, and 364-day instruments respectively.
Outlook on Yields /Advised Stop Rates
Since the last auction on the 1st of November 2017, demand for T-bills instruments in the secondary market has improved, as the average yield declined by 0.59%. Significant buy sentiments were witnessed on the 1M, 3M and 9M instruments that recorded yield declines of 2.43%, 0.17% and 0.60% respectively. The 6M and the 12M instruments recorded yield increases of 0.23% and 0.03% on the 9th of November 2017.
Also, we note that the demand in the primary market has remained significant, as all instruments were oversubscribed at the last auction, with the respective bid to cover ratios of 1.02x, 1.16x and 1.57x on the 91-Day, 182-Day and 364-Day instruments.
On the 7th of November 2017, Moody’s, a US credit rating agency, downgraded Nigeria’s Sovereign Issuer rating from B1 to B2 with a stable outlook. Alongside, the credit rating agency also lowered the long-term foreign-currency bond ceiling to B1 from Ba3 and the long-term foreign currency deposit ceiling to B3 from B2. However, the long-term local-currency bond and deposit ceilings remain unchanged at Ba1.
The agency reiterated that the downgrade was due to the country’s continued reliance on a single export commodity which has left the country structurally exposed to further economic or financial shocks from an oil price movement.
While we do not expect this to significantly affect the ability of the government to raise domestic debt, we note that this may pose a challenge, given that the government intends to refinance domestic debt with foreign loans (Eurobond).
In sum, we expect demand to remain buoyant at the next auction, as investors continue to prefer 364 day bill, resulting in further decline in yields.
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