NTB Auction Teaser: Lower Than Previous Rates Expected

Treasury Bills

August 17, 2016/Cordros

On Thursday, 18th August 2016, the sum of N62.44 billion will be injected into the banking system through maturing treasury bills. This comprises N32.44 billion of the 91-day and N30 billion of the 182-day bill. As is common practice, the CBN will offer the same amount (N62.44 billion) alongside an additional N50 billion on the 364-day bill at the primary auction, which will hold today, 17th August 2016.

T-Bills

91D 182D

364D

Indicative Rates (%)

14.80-15.20% 17.6-18.00%

18.00-18.40%

Sequel to the previous auction held on August 3 2016, bearish sentiments dominated the T-bills space, owing primarily to (1) the release of June inflation figure which came in high at 16.5%; and (2) the MPC’s decision to hike MPR by 200bps to 14%. In addition, system liquidity came under pressure amid the CBN’s aggressive OMO auctions. Consequently stop rates at the PMA came in significantly higher than the previous auction. The 91, 182 and 364-day bill recorded marginal rates of 15.44%, 18.0589% and 18.50% respectively (vs. 14.14%, 15.49% and 16.48%) at the previous auction.

Following the high stop rates sentiments strengthened in the NTB market and was sustained throughout last week save for a couple of sessions. Besides the high stop rates, other drivers for the bullish sentiments were expectations for significant liquidity inflows  via (1) anticipation of OMO repayment of N113.68 billion that hit the system on 11th August 2016; and (2) eventual inflow of N618.90 billion.

That said, on balance, yields still expanded by 104bps, on average, from 17.45% at the last auction day to 18.49%. The bearish sentiment was driven by aggressive OMO sales by the apex bank (Friday: N256.41 billion (188-day bill) at 18.00%; and today: N198.05 billion and N7.00 billion of the 191 and 282-day bills respectively at 18.00% apiece).

Going forward however, we expect a downtrend in yields due to the significant improvement in system liquidity as buoyant inflows worth N618.90 billion (N518.40 billion maturing bond — AUG 2016 — and N37.50 billion coupon payment) hit the system today. This was underpinned by today’s bullish proceedings in the treasury bills space, despite the CBN’s effort at mopping the inflows via OMO auctions (mentioned above). Thus, we expect lower stop rates (compared to the previous auction) at tomorrow’s auction as the possibility of aggressive demand appears highly likely.

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