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Investors expect lower rates as CBN conducts first Q2 T-Bills auction

The Central Bank of Nigeria (CBN) will on Thursday auction Treasury Bills worth N95.68 billion in its first Primary Market Auction (PMA) for the second quarter of 2019, with investors anticipating a lower stop rate.

Investors expect a stop rate bid range of between 10.00 percent and 10.20 percent compared with the last stop rate of 10.30 percent for a 91-day tenor instrument, according to details of this week’s T-Bills auction made available

For the 182-day tenor, they expect a stop rate of between 11.70 percent and 12 percent from the last rate of 12.20 percent.

In the same vein, the investors are looking at bidding at a range of between 11.90 percent and 12.20 percent compared with 12.34 percent for 364-day tenor.

Meanwhile, the CBN plans to sell N10 billion for 90-day tenor, N17.6 billion for 182-day tenor and N68.08 billion for 364-day tenor.

Consequently, Afrinvest Securities Limited has advised investors to take advantage of the long-term Primary Market Auction offer (yield around 13.9 percent) as well as selected secondary market bills with attractive yields.

“We do not rule out the possibility of a further moderation in the discount rate on T-Bills and Open Market Operation (OMO) bills instruments following the Monetary Policy Rate (MPR) cut and the absence of CBN’s OMO auction,” said Afrinvest analysts.

On Tuesday, March 26, the Monetary Policy Committee (MPC) of the CBN surprised analysts, economists and investors with a 50 basis point or 0.5 percent reduction in its benchmark interest rate to 13.5 percent, from 14 percent since July 2016. This triggered more buying interest as investors took positions across the yield curve. The regulator, however, retained asymmetric corridor around the MPR at +2 percent/-5 percent; Cash Reserve Requirement (CRR) at 22.5 percent and Liquidity Ratio at 30 percent.

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The regulator of banks and other financial institutions sells Treasury Bills twice a month to help government fund its budget deficit.

“It is possible that the yields on the Nigerian Treasury Bills (NTBs) remain around the current levels if there is still sustained demand,” says Ayodele Akinwunmi, head of research, FSDH Merchant Bank Limited.

A report by Afrinvest revealed that the bearish sentiments in the Treasury Bills secondary market were reversed last week as average yields across all tenors declined 11bps week-on-week to settle at 13.6 percent on Friday.

The uptick in investor sentiment was largely supported by the inflow of liquidity from matured OMO bills amidst the surprising absence of the CBN’s OMO auction all through the week. As a result, most investors took positions in the secondary market, particularly along the medium and long ends of the curve with the 18-Jun-19 (-120 bps), 20-Jun-19 (-106 bps) and 23-Jan-20 (-48bps) maturities enjoying significant buying interests.

The overnight inter-bank rate, which is the rate at which banks borrow and lend to each other, has been on a steady decline since Tuesday last week, dropping to 5.57 percent on Monday, April 1, from 17.29 on March 26, 2019.

Also, the Open-Buy-Back (OBB), a money market instrument used to raise short-term capital, declined to 5.00 percent on Monday, April 1, compared to 16.43 on Tuesday, March 26, 2019.
Nigeria’s external reserves have increased to $44.34 billion as at March 28, 2019, compared to $42 29 billion it stood on February 28, 2019.

Naira appreciated marginally by 0.02 percent to close at N360.60k per dollar on Monday, as against N360.80k/$ at the investors and exporters foreign exchange window.

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Source: By Hopes Moses Ashike

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