Primary Market Auction: Analysts Expect CBN to Keep Rates Depress

Analysts at Meristem Securities have said that due to the recent policy rate cut, the firm is expecting the Central Bank of Nigeria to keep rates depress across market.

Average yields on fixed income instruments have been trending lower amidst strong systemic liquidity, though some experts say this was due to scarcity of foreign exchange.

While inflation is fast rising, dropped at 12.34% in April, yields on government instruments have slowed down significantly.Primary Market Auction

Following the apex bank dovish trend, as part of efforts to stimulate the economy by keeping rates low, policy rate was slashed.

The Monetary Policy Committee, in its May meeting, cut the benchmark rate by 100 basis points (bps) to 12.50% in its bid to support economic recovery.


Last week, the CBN deducted ₦459.70 billion from bank balances, for both cash reserve requirements and loan to deposit ratio violations.

Yields Plunge in Treasury Bills Market amid Excess Liquidity

Hence, system liquidity has tightened slightly, opening the week at ₦111.08 billion long.

“Nevertheless, we expect demand at the next auction to remain strong as system liquidity levels remain robust”, Meristem’s analysts explained.

The CBN is scheduled to hold a Treasury Bills (T-Bills) Primary Market Auction (PMA) on the 11th of June 2020.

Existing T-Bills worth ₦90.94 billion will mature, and an equal amount will be issued across the 91-day, 182-day, and 364-day tenors.

The CBN is expected to auction ₦1.80 billion, ₦4.50 billion and ₦84.64 billion in the 91-day, 182-day, and 364-day instruments, respectively.

Outlook on Yields

Analysts at Meristem Limited emphasised that rates at the Treasury Bills auctions have continued to remain under pressure.

At the last Primary Market Auction, analysts said rates on the 91-day and 182-day instruments trended lower by 5 bps and 13 bps to 2.45% and 2.72% respectively.

However, the rate on the 364-day instrument inched higher by 18 bps to 4.02%.

Nonetheless, investors’ participation remained strong, indicated by a bid-to-cover ratio of 1.83x, 2.87x and 1.91x across the instruments on offer.

“Although selling pressures have been pronounced in the secondary market since the last auction – average yields rose to 2.85% from 2.64% – rates have continued to remain depressed, keeping real rates firmly in the negative territory”, analysts stated.

Meristem stated that more countries have opted for a relaxation of lock-down measures despite the increasing number of corona virus cases.

This move was attributed to the need to stimulate economic activity and prevent a recession takes the front burner.

The Federal Government has followed the same path, introducing further relaxation of the existing lockdown guidelines.

As a result, demand for oil has recovered slightly, supporting an improvement in oil price to about USD$40 per barrel.

“This bodes well for the economy with respect to oil receipts and its pass-through effect on external reserves and exchange rate”, analysts stated.

Primary Market Auction: Analysts Expect CBN to Keep Rates Depress




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