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Analysts Project Stable Treasury Bills Rates

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Financial analysts are predicting a stable outlook for Nigeria’s upcoming Treasury Bills auction.

They noted that rates would remain steady despite increased offer amounts and enhanced system liquidity.

According to Meristem Securities Limited, the Central Bank of Nigeria is set to auction T-Bills totalling NGN228.72bn, with varying maturities across 91-day, 182-day, and 364-day instruments.

The CBN offered a total of N44.23bn in Treasury Bills, a decrease from N221.13bn offered previously.

Despite the lower offer amount, market liquidity constraints impacted investor demand, resulting in a subscription of N407.76bn, which was 9.22 per cent higher than the offer.

The CBN allotted N55.23bn, lower than the previous auction, with stop rates declining marginally across all maturity periods—91-day, 182-day, and 364-day bills.

Meristem Securities analysts explained, “At the forthcoming auction, we expect rates to print slightly around the previous auction levels. In our view, the need to manage borrowing costs may continue to influence the direction of rates.

“Thus, we do not foresee any significant uptick in stop rates at the auction. However, the higher offer amount (NGN228.72bn) coupled with improved system liquidity may fuel investors’ demand and spur a marginal increase in rates.

“The Central Bank of Nigeria (CBN) is scheduled to hold a Treasury Bills (T-Bills) Primary Market Auction (PMA) on June 26, 2024. At the PMA, existing T-Bills totalling N228.72bn (N29.83bn, N30.67bn, and N168.21bn across the 91-day, 182-day, and 364-day instruments, respectively) will mature and be rolled over.”

The analysts suggested that while the higher offer amount could potentially stimulate investor demand, any resulting uptick in rates would be marginal, given the CBN’s ongoing efforts to manage borrowing costs.

They added that in the secondary market, sentiment had been mixed following the last auction, with investors showing a preference for longer-term bills, which briefly drove yields down to 21.02 per cent by mid-June.

According to analysts, the CBN’s rate guidance reflects a strategic balancing act to maximise investment returns while ensuring a successful auction outcome.

They highlighted that the recommended stop rates for the various T-Bills instruments, which consisted of 16.30 per cent for the 91-day, 17.44 per cent for the 182-day, and 20.50 per cent for the 364-day reflect this cautious approach.

Analysts anticipated that those rates would serve as a pivotal factor in attracting investor interest and determining market dynamics in the days leading up to the auction.

“In the secondary market, where previously issued bills are traded, a blend of sentiment has characterised the market since the last auction. Investors buying interest at the longer end of the curve drove yields lower to 21.02 per cent as of 14 June (vs 21.47 per cent as at the previous auction date).

“However, tighter liquidity conditions spurred a bearish bias afterwards, pushing the average yield up to 21.56 per cent as of 24 June. Given the above, our rate guidance is informed by the need to strike a balance between maximising investment returns and having a successful bid,” Meristem Securities analysts submitted.


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