Offer Summary 

The Central Bank of Nigeria (CBN) will hold a Treasury Bills (T-Bills) Primary Market Auction (PMA) on the 8 th of February, 2023. At the PMA, existing T-Bills totalling NGN217.06bn (NGN4.52bn, NGN1.31bn and NGN211.23bn 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 0.29%, 1.80%, and 4.78% (vs 2.00%, 4.33%, and 7.30% at the previous auction), respectively. Akin to the sentiment at the first PMA of 2023, investors' demand for the instruments was significant. Specifically, the total subscription (NGN1.04trn) was about five times the amount offered. However, the bid-to-cover ratio declined to 4.74x (vs 6.80x at the previous auction). We attribute this to the robust interbank liquidity at the auction date (which propelled higher subscriptions) and the Government's decision to allot less at the auction relative to investors' bids. 

We anticipate a marginal increase in stop rates on the instruments at the upcoming auction. Expressly, the relatively tight interbank liquidity following the recent CRR debit by the apex bank presents a case for higher rates. Also, the perceived increased default risk on the country's sovereign instruments – fanned by the latest credit rating downgrade by Moody's and S&P – could prompt investors to demand higher rates. However, we highlight the Government's conscious efforts to manage borrowing costs as a downside to this outlook. 

In the secondary market, the sentiment has been bullish on the back of buoyant system liquidity. As a result, the average Treasury bills declined significantly by 102bps to 2.21% as of February 06, 2023 (vs 3.23% on the date of the previous auction). In the near term, we expect minimal activities premised on limited interbank 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: