Offer Summary 

The Central Bank of Nigeria (CBN) will hold a Treasury Bills (T-Bills) Primary Market Auction (PMA) on the 9th of November, 2022. At the PMA, existing T-Bills totalling NGN193.03bn (NGN1.15bn, NGN2.83bn and NGN189.06bn 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, 182-Day, and 364-Day instruments increased by 3bps, 15bps, and 150bps to settle at 6.50%, 8.05% and 14.50%, respectively. Like recent PMAs, the increase in stop rates was primarily driven by the consolidated effect of the rate hikes and investors' demand for higher compensation. Although the subscription-to-offer and bid-to-cover ratios declined to 0.57x and 1.25x (vs. 0.59x and 3.21x at the previous auction), investors' participation increased (total subscription increased to NGN136.96bn from NGN111.94bn) relative to the previous auction. We attribute the decline in the subscription-to-offer and bid-to-cover ratios to the higher amount allotted (increased to NGN109.18bn from NGN34.82bn at the previous auction) by the CBN. In our view, this further denotes increased Federal Government's interest in the local debt market. 

At the forthcoming auction, we project a marginal increase in stop rates across the trio instruments. In our opinion, investors are demanding higher rates due to the heightened macroeconomic uncertainty, particularly the rising inflation, which has dragged the real return to negative. Also, the expectation for the Monetary Policy Committee (MPC) to maintain its hawkish stance in its meeting later this month supports the outlook. 

Broadly, the secondary market has been bearish as the average Treasury bills yield increased by 32bps to 14.61% as of November 7, 2022 (vs 14.29% on the date of the previous auction). We project that the bearish sentiment would persist due to investors' quest for higher rates at the PMAs. 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: