September 20, 2017/Cordros Research

Treasury bills worth N140.89 billion will mature on Thursday, 21st September, 2017. This comprises N28.12 billion, N23.68 billion, and N89.08 billion of the 91-day, 182-day, and 364-day bills respectively. In customary fashion, the CBN will offer the same amount at the primary auction which will hold tomorrow, Wednesday, 20th September, 2017.

Prior to the last auction, investors were upbeat in the T-bills market, with majority of traded bills recording yield contraction, causing average yield to drop 8 bps to 17.61%, from the previous week’s close of 17.69%. Particularly, the short (-22 bps) and long (-8 bps) ends of the curve were the most pressured while selloffs ensued at the mid (+18 bps) segment. The bullish proceedings correlated with the expansion in liquidity condition — as the overnight money market rate contracted by 10.17 percentage points from the previous week’s close of 30.92% to 20.75% a day to the auction. At the auction, the apex bank fully allotted N174.15 billion worth of T-bills. However, the 91-day (allotted N22.92 billion vs. N39.01 billion offered) and 182-day (allotted N25.14 billion vs. N48.45 billion offered) bills were under-subscribed by a total sum of N39.40 billion, which was offset by the oversubscription of the 364-day billion (allotted N126.09 billion vs. N86.69 billion offered). The bills were sold at respective stop rates of 13.25% (previously 13.30%), 17.36% (previously 17.36%), and 17.75% (previously 18.52%). Activity at the auction reflected higher demand for longer dated bills, consistent with the cessation of the apex bank’s offering of the one-year dated bill at its frequent OMO auctions.

Following the auction, investor sentiment remained bullish, with average yield contracting by 9 bps to 17.53%, amid relatively improved system liquidity, supported by inflow from matured OMO bills valued at N159.68 billion into the system on Thursday 14th September, with the overnight money market rate accordingly contracting by 771 bps to 12.17%. Demand persisted at the long (-46 bps) end of the curve, in addition to the mid (-12 bps) end, while investors sold off at the short (+45 bps) segment.

Overall, average yield has contracted by 22 bps to 17.61% since the last auction. Specifically, yield on the current 91DTM was unchanged, while the 182DTM bill recorded 8 bps yield expansion, with yield on the 364DTM bill trending lower by 63 bps, compared to what similar maturities printed last week.

That said, we expect healthy demand at tomorrow’s auction with stop rates on the 91, 182, and 364-day bills coming in lower relative to the previous auction. See indicative rates above.