Offer Summary 

The Central Bank of Nigeria (CBN) will hold a Treasury Bills (T-Bills) Primary Market Auction (PMA) on 10th of August 2022. At the PMA, existing T-Bills totalling NGN150.62bn (NGN1.02bn, NGN1.82bn and NGN147.78bn across the 91-day, 182- day, and 364-day instruments, respectively), will mature and be rolled over.  

Outlook on Yields

At the last PMA, stop rate on the 364-Day instrument remained unchanged at 7.00% while the stop rates on the 91-Day and 182-Day instruments advanced by 5bps and 10bps (to 2.80% and 4.10%) respectively. We view the increase in rates as an offshoot of the recent hike in Monetary Policy Rate by 150bps. Specifically, we observed strong investor appetite for the 364-day instrument as the subscription to offer on the instrument settled at 1.23x (vs. 1.01x in the last auction). However, for the 91-Day and 182-Day instrument, investors demand declined significantly, with the subscription to offer ratio declining to 0.84x and 0.40x from 1.02x and 1.33x at the previous auction. Overall, the Federal Government successfully raised more than the amount offered, due to the increased investors’ appetite for the 364-day instrument, pushing total subscription to 1.21x the amount offered (vs. 1.02x in the last auction). The bid-to-cover ratio also increased to 1.21x relative to 1.02x recorded in the previous auction.  

At the next auction, our prognosis is for rates to increase rise on the trio instruments as the market continue to price in the increase in the Monetary Policy Rate (MPR). Similarly, we note that the Government is more attuned to raising funds from the domestic debt market to fund its budget deficit giving the high cost of raising funds from the the international debt market. However, we note that the CBN Ways and Means Financing Window still remains open to the FGN and could make a case for a marginal reduction in the stop rates at the PMA.  

Bearish sentiment have continue to prevail in the fixed income secondary market as average treasury yield rose by 99bps to 7.95% as of August 08, 2022 (vs. 6.96% as at the previous auction). Our expectation is for yields to continue its upward trend, as the bearish sentiment persist and investors interest remain strong on primary market auctions.  

In respect to the above, our rate guidance is informed by the need to strike a balance between the goals of maximizing investment returns and having a successful bid. Thus, the recommended stop rates for the respective instruments are as follows: