Before the next treasury bill auction scheduled for May 26, 2021

Tuesday May 25, 2021 / 7:30 p.m. / Meristem Research / Header image credit: Bokk Keeper

Summary of the offer

The Central Bank of Nigeria (CBN) will hold a Primary Market (PMA) auction of treasury bills (treasury bills) on May 26, 2021. At the PMA, existing treasury bills valued at 24.18 Billion NGN, 19.16 Billion NGN and 19.16 Billion NGN 0.84 Billion on 91-day, 182-day and 364-day instruments will mature and carry over.

Outlook for returns

In the last PMA, stop rates on the 182 and 364 day instruments remained unchanged from the last auction while those on the 91 day instrument increased by 25 basis points to 2.50% . Although the average bid-to-cover ratio fell to 1.38x from 1.63x, investor demand remained robust as subscriptions greatly exceeded the amount offered. The relatively lower bid / coverage ratio was therefore due to a low supply (sales) of instruments by the government.

Meanwhile, the headline inflation rate for April 2021 moderated slightly to 18.12% due to food disinflation, but it remains well above Treasury bill yields and therefore an incentive for investors. to demand higher yields in the next PMA. We did, however, see a moderation in investor appetite for higher yields in the last auction, which may imply a decrease in investor influence due to limited options. Thus, we are not very optimistic about higher rates (compared to those in the last auction) in the next auction.

In the secondary market for treasury instruments, investor sentiment remained bearish, with average Treasury bill yields falling from 5.13% recorded at the date of the last auction to 5.55% (as of May 24, 2021) . Negative real yields continue to dampen investor appetite for treasury bills in the secondary market, especially as secondary market yields remain well above previous PMA rates. Given our expectations for rates in the next PMA, we do not expect secondary market returns to be significantly influenced by the outcome of the next auction as investors seek higher returns on corporate instruments. of good quality.

In view of the above, we recommend rates that aim to strike a balance between the objective of maximizing the return on investments and that of having a successful offer. The recommended stop rates for the respective instruments are listed below:

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