Culled—Proshare
June 12, 2018/Meristem Research
Issue on Offer/Summary
The Central Bank of Nigeria (CBN) is scheduled to hold a Treasury Bills (T-Bills) Primary Market Auction (PMA) on the 13th of June 2018. T-Bills worth NGN180.85bn will mature, while an equal amount expected to be issued in 91-day, 182-day and 364-day instruments. The CBN is expected to auction NGN6.22bn, NGN50.00bn and NGN124.64bn in the 91-day, 182-day, and 364-day instruments respectively.
Outlook on Yields /Advised Stop Rates
Investor confidence within the market weakened since the last PMA, as the average T-Bills yield has advanced by 0.78% to 12.87% on the 8th of June 2018. Yield gains were recorded across all tenors, with the 1M tenor being the least attractive as the yield on the tenor advanced by 2.48%. The 3M (+0.46%), 6M (+0.70%), 9M (+0.07%) and 12M (+0.17%) tenors all recorded yield advancement.
Although all instruments were oversubscribed with respective bid to cover ratios of 1.05x, 1.41x and 3.17x on the 91-day, 182-day and 364-day instruments, notable at this auction was the strong bargaining power of investors which fed from their bearish sentiment towards the space.
The 1M instrument retained its previous rate of 10.00% while the stop rate on the 12M tenor advanced by 30bps. This occurred despite the federal government agenda to draw down rate on the short-term instruments in the market. The 6M tenor was the only tenor to witness strengthened investor confidence, as its stop rate fell by 20bps.
In the period under review, the CBN paid keen attention to the activities within the FOREX market, as the regulator aligned with the strain FX illiquidity places on investor confidence in the market. FX liquidity tempered in the I&E window and this placed pressures on foreign reserves, as the CBN maintained its strategy of sustaining liquidity through its foreign reserves. The decline in foreign reserves started on the 10th of May, falling from NGN47.87tn to NGN47.61tn on the 31st of May 2018.
Unlike the 2nd quarter where amount on offer was half the amount of maturing T-bills, the T-Bills Issue Programme for Q3:2018 shows that total amount on issue equals total amount of T-bills maturing with increased offers on the 3M and 6M tenor.
We advise rates with the dual purpose of achieving the best possible yields, as well as ensuring the success of the bid. The advised stop rates for the respective instruments are listed below:
Participation Process
The T-bills Primary Auction bid holds twice in a month (i.e. every other Wednesday). The above likely stop rates are our estimates and might not necessarily hold true, as the final decision always lies with the CBN based on the auction process.
