T-Bills Auction: Pension Fund Administrators Expected to Drive Demand
Analysts said conservation investors like Pension Fund Administrators, PFAs, are expected to drive demand for Treasury bill as the Central Bank of Nigeria holds Primary Market Auction (PMA) tomorrow.
Existing T-Bills worth ₦7.50 billion, ₦54.59 billion and ₦125.20 billion across the 91-day, 182-day, and 364-day instruments respectively will mature.
As a result, analysts said the CBN will re-issue ₦7.50 billion, ₦54.59 billion and ₦125.20 billion across same tenors respectively.
Outlook on Yields
Meristem Securities Limited in a note stated that at the last T-bills PMA, investor demand pressure was relatively moderate.
Market data showed that overall bid-to-cover ratio declined to 2.29x from 2.66x recorded at the previous auction.
Thus, stop rates increased to 0.50% as against 0.035%, 1.00% from 0.50%, 1.50% compare to 1.21% at previous auction across the 91-day, 182-day and 364-day instruments respectively.
Also at the last auction, Meristem said CBN redeemed ₦125.14 billion worth of 364-day instruments most likely due to high bid rates placed on the high end of the market.
“In the secondary market, investors have also shown less enthusiasm with treasury bills since the last PMA”, the firm explained.
Average T-bills yield fell only marginally to 0.56% on Friday from 0.60% recorded on the date of the last PMA.
It was noted that negative real returns as a result of low yield and high inflation continue to dampen investor appetite for treasury bills in the secondary market.
“With the persistence of the second way of COVID-19 infections, economic recovery is fragile and the short-term outlook remains uncertain.
“Nonetheless, vaccination efforts across the world continue to offer hope”, analysts stated.
Meristem explained that the challenge of low government revenue is expected to linger.
Although, oil receipts are expected to be relatively larger this year than they were last year given the outlook for oil price and output.
“The main challenge facing investors ahead of the next T-Bills auction however is the unrelenting high inflation and the consequent negative real returns.
“Notwithstanding the risks highlighted above, we expect the offer to be oversubscribed albeit at higher bid rates.
“Demand will be driven by conservative investors such as PFAs especially as the alternatives are limited and carry greater risks.
“We advise rates with the dual purpose of achieving the best possible yields, as well as ensuring the success of the bid”, Meristem Securities stated.
Meristem Securities Projects 13.49% Inflation Rate for September
T-Bills Auction: Pension Fund Administrators Expected to Drive Demand
