Spot Rate on 364-Day T-Bills Anticipated to Fall Below 6.99%

Spot Rate on 364-Day T-Bills Anticipated to Fall Below 6.99%

Spot rate on 364-day Treasury bills has been anticipated to fall below 6.99% at the Central Bank primary market auction scheduled for tomorrow, according to analysts polled by MarketForces Africa.

Amidst slowdown in headline inflation rate and a better liquidity position in the financial system, long-dated tenor treasury bills have become investors’ attraction. But then, the spot rate at the end of the curve has been subjected to persistent slowdown.

Some critics call it financial repression but experts like Sonnie Ayere, the Chief Executive Officer at Dunn Loren Merrifield Limited doesn’t expect anything better in the space being a relatively risk free investment options.

Ayere told MarketForces Africa that fixed interest rates on securities don’t have to cover inflation as buyers take no risk that would warrant a premium being paid.

Ahead of the central bank primary market auction, Meristem Limited hinted in a report that that spot rate on 364-day would drop. Though the investment firm did not specify by how much but its position resonates well with other analysts’ views.

It would be recalled that the spot rate in the last auctions has seen a sustained slowdown.

Fixed-income investors have been earning inflation exposed returns though analysts have noted that moderation in headline inflation has reduced negative real return on investment.

While the central bank is expected to meet on November 22-23, the US Federal Open Market Committee (FOMC) voted unanimously to maintain the key policy rate in a target range of 0.00% – 0.25% on November 3, 2021.

Federal Reserve said the US will commence $15 Billion reductions in bond-buying with the expectation that other economies would see upward adjustments to benchmark interest rates to remain attractive to investors.

Sources explain to MarketForces Africa that to attract dollar inflows, countries will compete with adjustments to monetary policy rates. On a monthly basis, the reduction will see USD10 billion less in treasuries and USD5 billion less in mortgage-backed securities, Coronation Merchant Bank said in a fixed income report.

At the primary market auction, existing T-Bills total N150.82 billion. This will be split as N4.80 billion, N7.99 billion and N138.03 billion across the 91-day, 182- day, and 364-day instruments respectively, will mature and be rolled over.

At the last primary market auction, MarketForces Africa reported that the stop rates on the 91-day and 182-day instruments were unchanged at 2.50% and 3.50% respectively. However, the rate on the 364-day instrument declined to 6.99% from 7.25% at the previous auction.

Meristem Securities noted that investors’ demand waned, as overall subscription was 2.87x amount offered compared with 4.05x at the previous auction.

Also, the overall bid to cover ratio declined to 1.83x from 2.63x, the investment firm stated. In the coming auction, analysts at Meristem Securities are expecting stop rates to remain unchanged on the 91- and 182- Day instruments in line with recent historical trends.

However, they expect the rate on the 364-Day instrument to decline further. Meristem attributes its slowdown projection to Government’s preference for the longer-term instrument, despite a 11.74% decline in investor subscription for the instrument at the last auction.

“We note further that subscription to offer fell to 3.01x from 4.46x on the 364-Day instrument at the last auction.”

Analysts also revealed their observation that yields in secondary market has been bullish as average T-Bills yields declined by 18 basis points to 5.16% from 5.34% as at the date of the last auction.

“We do not expect any significant movement in yields in the near term as inflation expectation point to further moderation”, the firm noted.

Opening market liquidity was reported at N113.2 billion on Friday while overnight and repo rates closed within a range of 12.0-14.5%. Last week, the average NTB yield declined by 15 basis points week on week to close at 5.3% due to increased demand as local banks reinvested funds from OMO maturities earlier in the week.

The average yield for open market operations (OMO) bills decreased by 28 basis points to close at 6.1%. In the FGN bonds secondary market, the average yield increased by 3 basis points last week to close at 11.3% as investors focused on the longer end of the curve.

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