Analysts See Higher Spot Rates as CBN Holds Auction
Analysts have projected that spot rates across Nigerian Treasury bills tenored will be increased as the Central Bank sets to conduct a primary market auction on Wednesday.
Re-priced saving deposit rate and inflation have been pointed out as key drivers of spot rates in recent times. Yields in the secondary market have increased after the policy committee benchmark interest rate hikes in May, and July 2022.
CBN will be rolling over maturing bills worth N159.60 billion as part of an effort to mop up liquidity amidst Nigeria’s rising headline inflation rate. The maturing instrument that will be rollover are N1.44 billion, N6.85 billion and N151.31 billion across the 91-day, 182- day, and 364-day instruments, respectively.
In the last auction, the stop rates increased on the trio instruments. The 91-Day, 182-Day, and 364-Day instruments increased by 200bps, 135bps and 255bps to (5.50%, 5.85% and 10.00%) respectively.
“In our opinion, the rise in stop rates signals investors increased appetite for higher rates, given the tighter monetary policy stance. Also, the increase in the interest rate on savings accounts and bank deposits has incentivized investors to demand higher rates”, according to Meristem Securities Limited.
Market analysts said they observed strong investors’ appetite for the 364-Day instrument as the subscription to offer on the instrument settled at 1.28x relative to 1.06x recorded at the last auction.
On the other hand, investors’ demand for the 91-Day and 182-Day instruments declined substantially, with the subscription-to-offer ratio declining to 0.05x and 0.34x from 0.70x and 0.95x, respectively, at the last auction.
Cumulatively, Meristem records that the Federal Government successfully raised the exact amount offered mainly due to the high subscription on the 364-Day instrument. READ: Spot Rate on 364-Day T-Bills Rises to 10%
Auction results showed that the bid-to-cover ratio declined marginally to 1.03x versus 1.05x recorded in the previous auction. Analysts said as investors continue to price the monetary policy rate (MPR) increase, they expect rates to increase on the trio instruments at the next auction.
“Also, with the continuous inflationary pressure and its impact on real returns, we expect investors to demand higher rates to compensate for the rising prices. However, we observed improved system liquidity following the CBN’s upward revision of the saving deposit rate to 4.2%”, Meristem stated.
Market analysts said in their market reports that improved system liquidity and the CBN ways and means of financing make a case for a possible marginal reduction in the stop rates at the PMA.
Bullish sentiment reigned in the secondary market as the average Treasury bill yield moderated by 77.87 basis points to 7.67% as of September 12, 2022, against 8.44% on the date of the previous auction, analysts said.
In the near term, Meristem analysts expect this bullish sentiment to wane as the expectation of higher rates at the PMAs support an upward movement in yield. Overall, the firm indicates an expectation that bearish sentiment will prevail in the secondary market over the near to medium term.
