Analysts Expect Strong Investors Participation at CBN T-Bill Auction
As the Central Bank of Nigeria (CBN) is scheduled to hold a Treasury Bills (T-Bills) Primary Market Auction (PMA) Wednesday, analysts have predicted strong participation on account of strong liquidity level.
Excess liquidity has kept yields down amidst low interest rate environment following ban placed on non-banks and certain individuals from participating in the market auctions.
The fixed income market has record long period of negative returns as inflation rate continues to bite.
Meanwhile, existing T-Bills worth NGN19.78 billion, NGN40.09 billion and NGN107.94 billion across the 91-day, 182-day, and 364-day tenors respectively will mature; and the CBN will re-issue NGN19.78 billion, NGN40.09 billion and NGN87.94 billion across same tenors respectively.
Outlook on Yields
Despite low yields, the T-bills primary market auction (PMA) continued its bullish run at the last auction as all tenors were oversubscribed, with bid-to-cover ratios of 11.32x, 6.94x and 4.93x across all tenors.
Analysts at Meristem Securities noted that stop rates fell significantly as a result, to 0.34% (as against 1.00% at previous auction, 0.50% (as against 1.00% at previous auction, 0.98% compare to 2.00% at previous auction) across the 91- day, 182-day and 364-day instruments respectively.
Meristem Securities stated that activities in the secondary market have remained largely bullish since the last PMA as robust system liquidity continued to spur strong buying interests.
Consequently, average T-bills yield has declined albeit marginally to 0.49% (compare to 0.52% during the previous auction) as at 6th November 2020.
“We maintain our earlier concerns regarding mounting downside risks to government revenues which are now compounded by the reinstitution of lockdowns across key economies in Europe such as England and France.
“This may put further pressure on already weakened demand for crude oil and hence keep oil prices depressed”, Meristem Securities stated.
Furthermore, inflationary pressures persist with October inflation expected at 14.09% from 13.71% in September, making government securities unattractive at this time.
However, despite the risks highlighted above, analysts said they expect strong participation by investors at the next auction due to the high financial system liquidity and the fact that this is the second to the last T-Bills primary market auction for the year
Also, given that liquidity conditions in the Nigerian FX market have yet to significantly improve, Meristem Securities said it expects that the consequent inability of FPIs to exit their positions will boost demand for government instruments at the upcoming auction.
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Analysts Expect Strong Investors Participation at CBN T-Bill Auction
