Market | Bonds & Fixed Income

Ahead of Next T-Bills Auction Scheduled for 25th January 2023

Jan 24, 2023   •   by   •   Source: Meristem   •   eye-icon 253 views

Offer Summary 

The Central Bank of Nigeria (CBN) will hold a Treasury Bills (T-Bills) Primary Market Auction (PMA) on the 25th of January, 2023. At the PMA, existing T-Bills totalling NGN220.53bn (NGN1.74bn, NGN1.26bn and NGN217.53bn across the 91-day, 182-day, and 364-day instruments, respectively), will mature and be rolled over. 


Outlook on Yields 

At the first PMA of 2023, the sentiment was similar to December 2022 auctions. For context, stop rates on the 91-Day, 182-Day, and 364-Day instruments further declined to 2.00%, 4.33%, and 7.30% (vs 2.75%, 7.15%, and 8.49% at the previous auction), respectively. This significant stop-rate decline can be linked to massive investors' demand for the instruments (especially the 182-Day instrument) that outweighed the total amount offered. Specifically, the auction's subscription-to-offer ratios of the trio instruments were 14.49x, 37.74x, and 5.76x, respectively. 


In the forthcoming auction, we expect a marginal uptick in stop rates on the instruments. Our expectation stems from the higher total amount offered (NGN220.53bn), which is more than three times the total amount offered at the previous auction. Also, our projection of a further Monetary Policy Rate hike could prompt investors to demand higher rates. However, the likelihood of accretion to the system liquidity via FAAC allocation is a downside to this outlook. 


In the secondary market, the sentiment has been bearish, as the average Treasury bills increased marginally by 9bps to 3.71% as of January 23, 2023 (vs 3.62% on the date of the previous auction). We ascribe this to recent selloffs from the noteholders owing to the tight system liquidity. However, in the near term, we foresee a likely reversal in the direction of the yield as more robust liquidity (as highlighted earlier) could trigger increased buying activities. 


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:



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