Yesterday, the Central Bank of Nigeria conducted its first NT-bills auction for September at the primary market. The CBN offered a total of N214.7bn worth of bills at the auction across the 91-day, 182-day and 364-day papers. The auction was met with mild investor demand, with total subscriptions printing at N220.6bn, implying a bid-to-cover ratio of 1.0x. The 91-day and 180-day papers were undersubscribed by 0.1x and 0.3x, respectively. The bulk of the demand came for the 364-day bill, oversubscribed by 1.3x. Interestingly at the auction; the CBN opted not to oversell.
In line with market expectations, the stop rates across all tenors continued their upward trend, although higher than anticipated. The stop-rate on the 91-day, 180-day, and 364-day papers climbed 150bps, 85bps, and 150bps, to settle at 5.50%, 5.85%, and 10.00% (vs 4.00%, 5.00%, and 8.50%) respectively. Investors remained upbeat in their demand for higher rates for their funds amidst the tight financial system at the time, compared to the previous week. We attribute the observed contraction of the system’s liquidity at the time of auction to the CRR debit (c. N160.0bn) and debits from FX retail (N300.0bn) from last week.
Looking forward, we expect to stop rates in subsequent auctions will continue to tick upwards until the end of the year. The anticipated hike in MPR shapes our outlook for a continued uptick in the interest environment in rates. The need to tackle persistent inflation pressures also plays a considerable role in a hike decision. Lastly, increased hawkish monetary abroad will lead to a strong hike consideration for the MPC at its September meeting. For equities, we anticipate an uptick in fixed income rates will further exacerbate the bear sentiment seen in the last quarter. We recommend our clients switch assets to fixed income instruments and rejoin the equity market when prices have bottomed out