Offer Summary 

The Central Bank of Nigeria (CBN) will hold a Treasury Bills (T-Bills) Primary Market Auction (PMA) on the 24 th of August 2022. At the PMA, existing T-Bills totalling NGN295.53bn (NGN3.56bn, NGN11.03bn and NGN280.93bn 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 rates on the 91-Day, 182-Day and 364-Day instruments increased by 70bp, 40bps and 45bps to (3.50%, 4.50% and 7.45%) respectively. The increase in rate signals investors' demand for higher rates considering the impact of the rising inflation on investors' real returns. Also, the subscription to offer ratio across the trio instrument improved to 1.77x, 0.93x and 1.25x from (0.84x, 0.40x and 1.23x in the last auction). The overall improvement in the subscription-to-offer ratio signals an increased investor's appetite. The total subscription-to-offer ratio thus improved to 1.25x (vs 1.21x in the last auction), and the bid-to-cover ratio also increased to 1.25x relative to 1.21x recorded in the previous auction. 

At the next auction, we expect rates to increase across all instruments on offer as investors continue to price in the increased market risk and the recent monetary policy rate hike. Also, given the high cost of raising funds from the foreign debt market, we expect the government to focus more on borrowing from the domestic debt market to cover its current budget deficit. In addition, the upward revision in the savings deposit rate (to a minimum of 30% of MPR from 10%) by the CBN could be a consideration for investors to demand a higher rate. 

In the secondary market, bearish sentiment reigned as the average Treasury Bills yield increased by 7bps to 7.85% as of August 22, 2022 (vs. 7.78% on the date of the previous auction). In the near term, we expect this bearish sentiment to persist due to the expectation of higher rates at the PMAs. 

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