Investors anticipate further decline in TB rates as CBN sells N122bn

The decline in yields on treasury bills (TB)    which commenced last month is expected to persist this week when the
Central Bank of Nigeria (CBN) sells N122 billion worth of    fresh bills.

The decline in TB yields which is driven by increased demand from investors,    is reflected in the huge oversubscription recorded in the last primary market auction conducted by the apex bank on October 2nd.

While the CBN offered and sold N134 worth of TBs, total public subscription stood at N338.2 billion, translating to152 percent over subscription.

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In response the CBN reduced the stop rates of the 91-Days bills, 184-Days bills and 364-days bills of 11.08 percent, 11.60 percent and 13.20 percent respectively from 11.10 percent, 11.75 percent and 13.30 percent from the last auction.

Analysts at Lagos based Cowry Assets Management Limited projected that this trend will persist this week due to increased demand for TBs by investors.

They said: “In the new week, CBN will refinance T-bills worth N121.88 billion, viz: 91-day bills worth N5.85 billion, 182-day bills worth N3.50 billion and 364-day bills worth N112.54 billion. We expect their stop rates to decline marginally, particularly at the long end of the curve, as investors have shown sustained preference for the 364-day bills in previous auctions. We also expect NIBOR to moderate amid maturing N463.98 billion OMO-bills.”

Meanwhile, the CBN is expected to sustain the tempo of its liquidity mop operations this week by selling secondary market (Open Market Operations, OMO) TBs to curb the impact of the anticipated inflow of    N463.9 billion from maturing bills.

Last week, the apex bank,    in response to inflow of N347 billion from matured OMO bills,    mopped up N381.9 billion via OMO TBs. This caused sharp decline in interbank money market liquidity which prompted average short term cost of funds to rise by 886 basis points (bpts).

Data from FMDQ showed that interest rate on Collateralised (Open Buy Back, OBB) rose by 872 bpts to 11.43 percent last week from 2.71 percent the previous week. Similarly, interest rate on Overnight lending rose by 900 bpts to 12.43 percent last week from 3.43 percent the previous week.

According to analysts at Lagos based Afrinvest Securities Limited, the cost of funds may remain elevated due to CBN liquidity mop up.

They said: “Given large inflows worth N464 billion from OMO maturities expected next week, we believe the CBN would continue to keep rates in check through regular auctions. We also expect that the elevated system liquidity levels would  continue to drive rates lower in the secondary T-Bills market.”
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