Offer Summary 

The Central Bank of Nigeria (CBN) will hold a Treasury Bills (T-Bills) Primary Market Auction (PMA) on the 22nd of February, 2023. At the PMA, existing TBills totalling NGN263.50bn (NGN11.68bn, NGN10.21bn and NGN241.61bn across the 91-day, 182-day, and 364-day instruments, respectively), will mature and be rolled over. 

Outlook on Yields 

At the last PMA, the stop rates on the 91-Day, 182-Day, and 364-Day instruments further declined to 0.10%, 0.30%, and 2.24% (vs 0.29%, 1.80%, and 4.78% at the previous auction), respectively. Like the previous PMA, the robust system liquidity (which spurred higher subscriptions) was the primary driver of the lower rates. For context, the interbank liquidity reported by the CBN stayed at c. NGN650bn as of the auction date. Consequently, the total subscription (NGN1.06trn) was 4.87x the amount offered (vs 4.73x at the previous PMA). Contrary to the previous auction, total allotment – especially on the 364-Day instruments – was higher than the amount offered. Thus, the bid-to-cover ratio declined significantly to 2.53x (vs 4.73x at the previous auction). 

At the forthcoming auction, we estimate that the stop rates across instruments would hover around the last auction's range. Our expectation is premised on the Federation Account Allocation Committee's January distribution (NGN750.17bn as stipulated) and OMO maturities (NGN70.00bn). With these inflows, liquidity - a significant determinant of the market mood – gets a boost and could pressure stop rates further. In addition, the evident efforts by the Government to manage its borrowing costs support this outlook. 

In the secondary market, notable selloffs have been witnessed. As a result, the average Treasury bills increased significantly by 139bps to 3.10% as of February 20, 2023 (vs 1.71% on the date of the previous auction). Overall, the sentiment has been predominantly bearish, and we expect this to persist in the near term owing to heightened political risk. 

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