Offer Summary 

The Central Bank of Nigeria (CBN) will hold a Treasury Bills (T-Bills) Primary Market Auction (PMA) on 28th of September 2022. At the PMA, existing T-Bills totalling NGN141.34bn (NGN12.28bn, NGN20.35bn and NGN108.71bn 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 instrument remained unchanged at 5.50%, while the stop rate on the 182-Day instrument increased by 15bps to 6.00%. However, the stop rate on the 364-Day instrument declined by 25bps to settle at 9.75%. We attribute the divergent movement in yields to investors' preference for the longer tenured instrument (subscription to offer on the 364-day instrument increased to 3.10x from 1.28x at the previous auction) due to its relatively higher discount rate. On the flip side, the subscription to offer on the 182-day instrument was lower (0.20x) relative to the previous auction (0.34x), explaining the increased rate. The bid-to-cover ratio also increased to 2.55x from 1.03x recorded at the previous auction. 

With the increase in the monetary policy rate (from 14.00% on July 19th , 2022, to 15.50% on September 27th, 2022) and increased market risk, we expect rates to increase across all instruments on offer. Furthermore, the most recent coupon payment of NGN131.20bn on two Federal Government of Nigeria bonds is anticipated to support the improvement in liquidity. However, the major tailwind to higher rates at the PMA is the recent increase in banks' Cash Reserve Ratio (CRR). We expect this to cause a liquidity squeeze in the system, especially as there is a tight two-day window (till September 29th) to meet the target CRR of 32.50%. 

Bullish sentiment reigned in the secondary market as the average Treasury bills yield moderated by 52bps to 7.27% as of September 26, 2022 (vs. 7.79% on the date of the previous auction). In the near term, we expect this bullish sentiment to wane as the expectation of higher rates at the PMAs support an upward movement in yield. Overall, we expect bearish sentiment to prevail in the secondary market over the near to medium term. 

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: