Offer Summary 

The Central Bank of Nigeria (CBN) will hold a Treasury Bills (T-Bills) Primary Market Auction (PMA) on the 7 th of December, 2022. At the PMA, existing T-Bills totalling NGN54.45bn (NGN21.03bn, NGN11.94bn and NGN21.39bn 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, and 182-Day stayed flat at 6.50% and 8.05%, while that of 364-Day instrumentsincreased by 85bpsto settle at 14.84%. We view this as a response to the tight monetary policy stance maintained by the Monetary Policy Committee, which led to another 100bps rate in its November meeting. Also, we observed a decline in investors' demand compared to the previous auction as the subscription-to-offer ratio across the trio instruments decreased to 0.37x, 0.07x and 2.47x from (0.72x, 0.19x and 3.59x at the prior auction), respectively. However, the bid-to-cover ratio increased marginally to 1.69x relative to 1.68x recorded in the previous auction. 

At the forthcoming auction, we expect a moderation in stop rates, specifically on the 364-day instrument. Our expectation is primarily hinged on the robust interbank liquidity. For context, the overnight policy rate and the overnight rate declined to 11.88% and 12.75% from 17.13% and 17.25% (as at the previous auction), respectively. Also, the relatively low amount offered - NGN54.45bn (vs NGN213.43bn in the prior period) could prompt oversubscription, thus, driving stop rates lower. 

The bullish sentiment prevailed in the secondary market, asthe average Treasury bills decreased by 135bps to 11.57% as of December 05, 2022 (vs 12.91% on the date of the previous auction). This is because investors with unmet demands at the prior auction rotated into the secondary market during the period. We expect the same dynamics to continue in the near term as the amount on offer is low (as highlighted above), and there is also increased system liquidity. 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: