Robust Subscription to Keep Rates Tight as CBN Holds Auction
Godwin Emefiele, CBN Governor

Robust Subscription to Keep Rates Tight as CBN Holds Auction

The fixed income investors robust subscriptions will influence spot rates movement as the Central Bank of Nigeria holds primary market auction today, analysts said. The Central Bank of Nigeria (CBN) will hold a Treasury Bills (T-Bills) Primary Market Auction (PMA) on Wednesday where existing T-Bills totalling N109.43 billion (N12.46 billion, N25.37 billion and  N71.60 billion across the 91-day, 182-day, and 364-day instruments) will mature and be rolled-over.

At the last PMA, the average stop rate declined further to 5.03% from 5.13% driven by a decline in the rate offered on the 364-day instrument (to 9.15% from 9.40%). Rates on the short (91-Day) and medium (182-Day) term instruments remained unchanged at 2.50% and 3.50% respectively.

Robust Subscription to Keep Rates Tight as CBN Holds Auction
Godwin Emefiele, CBN Governor

Meristem Securities Limited said in a market report that the direction of rates continues to be influenced by strong investor subscription (particularly on the 364-day instrument), and the need to minimise the Federal Government’s borrowing cost.

Relative to the previous auction, the FGN’s appetite for 364-day bills was significantly stronger, thus the overall bid-to-cover ratio reduced to 2.73x (from 9.21x) despite increased subscriptions.

“In the coming auction, we expect the rates on the 91- and 182-Day instruments to remain unchanged in line with recent trends”, the investment firm said.

However, analysts at Meristem Securities said they expect further moderation in the rate on the 364-Day instrument, due to sustained robust investor appetite.

“This is in addition to further pressure on debt service charge arising from the need to finance the deficit in the NGN982.84bn supplementary budget approved by the National Assembly last week”, analysts added.

The investment firm hinted that the sentiment in the secondary market has been largely bullish since the last auction, as investors turned to the secondary market to fill unmet demand at the PMA (especially on the long end of the curve).

Furthermore, it said the market has been reacting to the downtrend in average stop rates at recent PMAs. Market data shows that average T-bills yield fell to 6.23% as at 12th July 2021 from 6.74% from the last auction date.

Nevertheless, Meristem Securities analysts said they maintain that over the near term, the average yield will rise slowly

On Tuesday, the Nigerian Treasury Bill secondary market was bullish, as the average yield contracted by 3bps to 6.9%.

Across the benchmark curve, average yield contracted at the long (-5bps) end due to demand for the 317 day to maturity (-30bps) bill but stayed flat at the short and mid segments.

Elsewhere, the average yield at the open market operations (OMO) segment remained unchanged at 9.8%.

Cordros Capital analysts said in an email to clients that trading in the Treasury bond secondary market was bearish, as the average yield expanded by 11bps to 11.6%.

Across the benchmark curve, average yield expanded at the short (+4bps) and long (+24bps) ends due to sell-offs of the APR-2023 (+36bps) and MAR-2036 (+36bps) bonds, respectively; the mid-segment closed flat

In the money market, the overnight lending rate expanded by 400 bps to 19.0%, as funding pressures outweighed inflows from OMO maturities worth N10.00 billion.

Robust Subscription to Keep Rates Tight as CBN Holds Auction

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