Strong Demand for Long-Tenor T-Bills Signals Positive Inflation Expectation
Central Bank of Nigeria, CBN, said market preference or strong demand for long-tenored inflation rate signals positive expectation about inflation. The apex bank hinted about this in its monthly report for October 2021.
Market preference follows a bias that headline consumer price index would slowdown; narrow negative return earned by investors in fixed income space.
After rising for 19 consecutive months, Nigeria’s headline inflation rate has continued to moderate, from a high of 18.17% in March down to 15.40% in November, marking 8 monthly consecutive declines.
The total amount of CBN bills offered, subscribed to, and allotted were N100.00 billion, N186.37 billion, and N92.34 billion, respectively, according to the report posted on its website.
According to the apex bank, this was lower when compared to an offer of ₦120.00 billion, with a subscription that printed at ₦461.75 billion while CBN allotted ₦116.76 billion in September 2021.
The relatively lower bid-cover ratio for October 2021, according to the report, reflects the tight liquidity condition in the market.
CBN stated that the tenors of CBN bills used in conducting Open Market Operations (OMO) auctions in October 2021 ranged from 82 to 355 days, with bid rates averaging 8.50 (±1.60) per cent.
In the period, the stop rates averaged 8.55 (±1.55) per cent, the report noted.
It was noted that repayment of matured CBN bills was ₦203.00 billion, translating to a net injection of ₦110.66 billion through this medium. There were issues of Nigerian Treasury Bills and long-term FGN Bonds at the primary market.
The report revealed that a total of ₦271.70 billion, ₦924.15 billion, and ₦463.66 billion were offered, subscribed to and allotted, at the auctions held in the month with 91-, 182- and 364-day tenors, respectively.
At the 91-day auction, total offer, subscription, and allotment were ₦8.41 billion, ₦9.07 billion, and ₦6.91 billion, respectively, with bid rates averaging 3.98 (±1.53) per cent, and the stop rate was 2.50 per cent.
For the 182-day auction, the total offer, allotment, and subscription were ₦14.80 billion, ₦11.13 billion, and ₦8.97 billion, respectively. According to CBN, the bid rates averaged 5.10 (±1.65) per cent, while the stop rate was 3.50 per cent.
At the 364-day auction, total offer, subscription, and allotment were ₦248.49 billion, ₦903.95 billion, and ₦406.41 billion, respectively, with bid rates averaging 7.12 (±0.13) per cent, while stop rates averaged 4.88 (±2.38) per cent.
“Overall, the market revealed stronger preference for long-tenored securities, which reflects positive expectation about inflation”, CBN stated in the report.
It also noted that movements in interest rates witnessed in the period reflects the relatively tight liquidity condition in the market, as short-term rates trended above their levels in the preceding month.
Daily inter-bank call and Open-Buy-Back rates averaged 11.00 per cent (±4.00) and 12.69 per cent (±6.55), respectively, according to CBN.
Other rates such as the 7-, 30- and 90-day NIBOR3 traded at averages of 13.89 per cent, 11.31 per cent and 12.45 per cent, respectively in the period.
This indicates rates inched higher in the month when compared with 12.38 per cent, 10.92 per cent and 11.85 per cent in the preceding month. #Strong Demand for Long-Tenor T-Bills Signals Positive Inflation Expectation
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