September 8, 2021/United Capital Research

The Central Bank of Nigeria (CBN) is scheduled to conduct a Primary Market Auction (PMA) to rollover N138.2bn worth of maturing treasury bills today (8/09/2021). Clearly, following the upward pressure on interest rates in the first half of the year, sovereign debt managers have leaned towards driving sustained downward pressure on the yield environment. This comes as the Federal Government’s (FG) cost of funding continues to pile pressure on budget performance. In H1-2021, the FG spent c.90.0% of its revenue on debt servicing. Giving the foregoing, we review the last auction and provide our expectations for the upcoming auction. 

At the previous auction, the Central bank sold N307.3bn worth of bills as against N157.2bn offered. Overall, the auction received total bids of N394.1bn as investors’ appetite for bills remained strong. Notably, the 91-day and 364-day bills were oversubscribed by 1.6x and 3.0x, respectively. On the flip side, investor interest for the 182-day bill was lukewarm posting a subscription rate of 0.7x. Stop rates remained unchanged from the previous auction at 2.50% and 3.50% for the 91-day and 182-day bill. While stop rates for the long-tenor paper continued to moderate, dipping by 55bps to 6.80% from 7.35%.

Ahead of the PMA, we expect investors’ appetite to remain robust, thus driving sustained oversubscription, and moderation of stop rates for the 364-day paper, we expect demand for bills to spill into the secondary NTB market, sparking bullish sentiment. Lastly, we are cautiously optimistic that the further moderations in the stop rates at PMA’s could serve as a potential trigger for a potential asset switch and rally in the equities market. 

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