PMA: Lack of Alternative Investments to Keep Participation Strong
Lack of alternative investments is expected to keep investors participation in the Nigeria’s central bank primary market auction (PMA) strong today, analysts have noted.
The CBN is scheduled to hold a Treasury Bills (T-Bills) PMA today 26th of August 2020 amidst declining gross domestic product (GDP).
Existing T-Bills worth ₦197.60 billion will mature and are expected to be reissued in ₦20.37 billion, ₦31.75 billion and ₦145.48 billion across the 91-day, 182-day, and 364-day tenored instruments.
In a note, Meristem Securities Limited recalled that at the last treasury bills primary market auction, investors’ participation remained strong.
This was evidenced by an over-subscription of ₦61.40 billion and bid to cover ratios of 1.55x, 3.11x and 2.09x on the 91-day, 182-day and 364-day instruments respectively.
Analysts at the firm explained that stop rates trended lower to 1.39% and 3.20% on the 182-day and 364-day instruments- as against 1.50% and 3.40% at the preceding auction – but remained unchanged at 1.20% on the 91-day instrument.
Meanwhile, average treasury bills yield continued its downtrend in the secondary market, due to sustained buying pressures.
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Since the last auction, Meristem said average yields have declined by 13 basis points (bps) from 1.93% to 1.80% as at 21 August 2020.
While economic activities are picking up gradually, several countries across the world have begun sliding into recession, a fall out of the lockdown measures and the disruption in global supply chains.
In the domestic space, report by the National Bureau of Statistics (NBS) shows that Nigeria’s GDP contracted by 6.10% year on year in Q2:2020; far worse than the -2.06% recorded in Q2:2016 during the global oil price crash.
Meristem said although the relative stability of oil prices and the pickup of economic activities are expected to support recovery, the outlook is still largely uncertain.
“We expect investors to factor this into their decisions in the coming treasury bills auction”, Meristem reckoned.
The firm said on the other hand, headline Inflation has maintained its uptrend, rising to 12.82% in July from 12.56% recorded in June 2020.
With persistently declining yields, real rate of returns remain firmly in the negative territory.
“We however do not expect investors to be deterred by this development at the next auction given the elevated system liquidity and the dearth of attractive alternative investments.
“Our outlook for system liquidity is premised on CBN’s expansionary monetary stance, maturing OMO bills and monthly FAAC allocations”, Meristem stated.
PMA: Lack of Alternative Investment to Keep Participation Strong
