CBN to Auction Nigerian Treasury Bills, Targets N700 Billion
MarketForces Africa – The Central Bank of Nigeria (CBN) is scheduled to conduct a primary market auction on Wednesday, targeting N700 billion across standard tenors.
The market anticipates significant subscription, a projection anchored on bullish actions in the secondary market, and excess liquidity in the financial system.
In a chat with MarketForces Africa, several investment banking analysts noted that demand has been piling up from institutional investors, pension funds, and local banks due to the cancellation of the previous week’s auction.
The authority will invite market participants to bid for N100 billion, N100 billion, and N500 billion worth of Nigerian Treasury bills with 91-day, 182-day, and 364-day tenors, respectively.
The midweek auction is standalone as there will be no naira asset maturing that requires refinancing – this is anticipated to mop up significant liquidity from the financial system depending on the allotment.
At the last auction in July, the CBN increased the total offer size by 16.67% to N700 billion from N600 billion, Meristem Securities Limited said.
Meanwhile, fixed income market investor demand rose 19.24% to N3.62trn from N3.03trn, reflecting sustained appetite for attractive Treasury Bill yields.
The investment firm said total allotment also increased 4.74% to N1.25 trillion from N1.19 trillion, with the 364-day bill accounting for 81.57% of allotment at N1.02trn, despite declining from N1.06trn previously.
“Allotments for the 91-day and 182-day bills increased to N130.72 billion and N99.18 billion, respectively.
“The allotment-to-offer ratio declined to 1.78x from 1.98x, mirroring the larger offer size, while the bid-to-cover ratio remained strong at 3.32x”, Meristem Securities said in a report.
Stop rates were unchanged at 16.30% and 16.50% for the 91-day and 182-day bills, respectively, while the 364-day stop rate declined by 31bps to 17.35% from 17.66%.
The lower long-end rate, despite strong demand, suggests investors were willing to accept slightly lower yields to lock in returns.
Since the last auction, yields on Nigerian Treasury bills have continued to ease, with the average yield declining to 18.09% as at August 10 from 18.16% at the last auction.
Fixed income market analysts expect healthy participation at the midweek auction, particularly at the 364-day tenor, as investors seek to lock in relatively attractive yields.
However, despite the buildup of unsatisfied demand and the CBN maintaining a cautious approach to rate cuts, Meristem Securities Limited expects stop rates to remain broadly stable at current levels, although the stop rate on the 364-day tenor could increase slightly.
Nigerian Treasury Bills Yields Fall on Naira Asset Attractiveness
