Yesterday, the Central Bank of Nigeria conducted an NT-bills Primary Market Auction (PMA), with a total of N295.5bn worth of bills on offer across the 91-day, 182-day and 364-day tenors. Overall, there was mild investors’ demand, with total subscriptions printing at N311.1bn and a bid-to-cover ratio at 1.1x. The 91-day bill was undersubscribed by 0.7x, while the 182-day and 364-day bills were oversubscribed by 1.0x and 1.1x, respectively. Notably, the CBN sold just the amount on offer.

In line with market expectation, the stop rates across all tenors continued their upward trend. The stop rate on the 91-day, 182-day and 364-day bills rose by 50bps, 50bps and 105bps to print at 4.0%, 5.0% and 8.5% (vs 3.5%, 4.5% and 7.5%) respectively. The upward trend further shows that investors are demanding higher rates for their funds amidst the tight liquidity in the system. In addition, the hike in benchmark interest rate by the Monetary Policy Committee (MPC) and the rising inflationary environment remain key drivers of the rising yield environment.

Looking forward, we expect the stop rates in subsequent auctions to maintain their upward trend. In the absence of any substantial flows that will make the market liquid, we believe that fund managers will demand higher rates for their funds. Given the inherent food insecurity in food-producing states and rising global energy prices, inflationary pressures will persist in the short to medium term. This will push the MPC to consider future rate hikes to combat the effect of rising inflations, thus, further driving rates on the fixed income instruments northwards. As a result, we project a bear equity market as investors switch their asset classes from the equity market to the fixed income market.