Offer Summary 

The Central Bank of Nigeria (CBN) will hold a Treasury Bills (T-Bills) Primary Market Auction (PMA) on the 8^th of March 2023. At the PMA, existing T-Bills totalling NGN224.50bn (NGN1.03bn, NGN10.55bn and NGN212.92bn 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 rose rapidly to 3.00%, 3.24%, and 9.90% (vs 0.10%, 0.30%, and 2.24% at the previous auction), respectively. This came after a sustained decline in stop rates to near-zero levels. Contrary to previous auctions this year, lower system liquidity was the primary driver of the significant rate increase. Specifically, interbank liquidity reported by CBN plunged to a negative value of c.NGN22bn as of the auction date. Hence, the total subscription settled at NGN296.75bn – the lowest since September 2022. Likewise, the bid-to-cover declined significantly to 1.00x (vs 1.92x at the previous auction), signifying lower investors' demand. 

At the upcoming auction, the stop rates across instruments are estimated to moderate marginally. Although we consider the recent excess CRR debits by the CBN, system liquidity remains robust (c.NGN309bn as of March 06). Furthermore, the amount offered is lower than the previous auction (NGN263.50bn). Additionally, the Government's increasing need to manage its finance costs complements our outlook.

In the secondary market, increased selloffs were noticed on the Treasury instruments, particularly short-dated ones. Subsequently, the average Treasury bills rose by 60bps to 4.19% as of March 07, 2023 (vs 3.59% on the date of the previous auction). In the near term, we posit that yields on the instruments would likely remain at the current level. 

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: