CRR hike Fuels Bearish Sentiments as Average Yield Inches to 3.7%

Afrinvest has (www.afrinvest.com) said the recent hike in cash reserve ratio fueled bearish sentiment experienced in the secondary market last week.

Due to potential liquidity squeeze in the system, the investment banking firm in a note observed that average yield spiked to 3.7% from 3.5% in the comparable week.

Afrinvest analysts stated that following the increase in reserve ratio from 22.5% to 27.5%, the Nigerian Treasury Bills  secondary market started off with sell-offs.

Afrinvest attributed the sell-offs as investors reaction to potential squeeze in system liquidity of about N294.2 billion as at Friday.

Meanwhile, the firm held that the bearish sentiments slowed towards the end of the week amidst the Primary Market Auction (PMA) and inflows from maturing Open Market Operation (OMO) bills of about N 495 billion.

Subsequently, average yield across all tenors rose from 3.5% to 3.7% week on week.

Analysts noted that major sell-offs were recorded on the short and mid tenor bills, particularly the 2-Apr-20 which spiked by +117 basis points (bps), 12-Mar-20 did +46bps and 16-Jul-20 up +21bps maturities.

At the PMA on Wednesday, investors demand contracted across all tenors relative to that of previous auctions, Afrinvest revealed.

Analysts held that while the significant decline in subscription levels was surprising, investors benchmarked yields to the FGN Promissory notes which traded at higher levels.

Consequently, stop rates across the short, medium and long term instruments rose by 0.6%, 0.6% and 1.4% respectively.

The average bid to cover ratio was 1.1x with the 91-day tenors enjoying the most interest at 1.9x.

On Thursday, the Apex Bank offered OMO bills worth N200 billion across 82-, 180- and 364-Day tenors and this received a total subscription of N478.2 billion.

The medium and long tenor bills were both oversubscribed by 2.0x and 2.5x respectively while the short tenor received no subscription.

Then, the CBN   allotted a total of N210.3 billion with stop rates across the 180 and 364-Day tenors clearing at 11.6% as against 11.5% previously and 13.0% compare to 13.2% previously respectively.

“Going into the week, we expect the CBN to sustain its liquidity mop ups given that inflows from OMO maturities worth N327.6 billion are expected to bolster system liquidity.

“We also expect trading activities to improve especially as investors fully digest the impact of the CBN’s new policy on CRR”, Afrinvest reckoned.

Analysts at the firm however said investors are thus advised to cherry pick relatively attractive offers as well as close alternatives such as short-term FGN bonds with time to maturity (TTM) of 2-3 years.

CRR hike Fuels Bearish Sentiments as Average Yield Inches to 3.7%

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