Standoff approach to bonds to drive strong NTB appetite Analysts point to oversubscribed CBN auction Banking system liquidity providing appetite
THE RECENT TRENDS in the Central Bank of Nigeria auction of Nigerian treasury bills have witnessed overwhelming investor appetite for government papers which have stayed strong. But the strong subscription level has been unsurprising considering the strong liquidity level within the banking system.
Market analysts in their commentaries on the subscription level and its implication said the continued demand for the government paper will be spurred by investors’ standoff approach to the bonds market while driving a further moderation on the short term yields and the mid to long tenor bills in particular.
Analysts at United Capital Research in their note on the development, commented: “Looking ahead, in the NT-bills secondary market, a confluence of Wednesday’s auction results, the large volume of unmet bids, and continued investors’ standoffish approach to the bonds market will continue to spur demand for NT-bills, driving further moderation on short term yields and particularly mid to long tenor bills.
“For the equities market, we do not expect the recent and sustained moderation in short term rates to lead to an asset switch. PFAs who are the group of investors that are sensitive to yield movements will continue to find bonds attractive, compared to the equities market, despite a volatile yield terrain. In addition, the recent rally in the equities market would mean traders would be in profit-taking mode over the next weeks as they look at locking profits for the year. These sell pressures could create attractive price points to enter the equities market towards the end of the year ahead of [the] fullyear 2021 earnings season,” they noted.
Last Wednesday, at the primary market auction, the CBN offered Nigerian
Treasury Bills worth N150.81 billion to the market split into N4.80 billion, N7.98 billion and N138.03 billion across the 91-day, 182-day, and 364-day tenors, respectively. The auction showed that investor appetite for government paper remained strong, although most of the bids at the auction came in for the longer tenor paper, as the 9-day and 182-day bills posted subscription rates of 0.2x and 0.5x.
However, demand for the long-tenor bill continues to remain strong as it was oversubscribed by 4.1x, in line with the recent trends at recent NTB auctions.
A deep dive into the activities witnessed last Wednesday, showed that stop rates for the 91-day and 182-day bills remained untouched at 2.5 percent, 3.5 percent, respectively. Nonetheless, rates on the longer tenor paper dipped by 49 basis points to close at 6.5 percent. United Capital analysts said the stop rates closed in line with their expectations, as they anticipated strong investor demand coupled with lower rates while investors continue to take a cautious approach towards the bonds market with a preference for short term bills, driving rates at the short end of the curve lower.
Into the bargain, the CBN oversold the auction as was expected by traders and investors alike, allotting N196.2 billion worth of bids compared to the N150.8 billion it had planned to sell; but overwhelmingly below the total subscription of N574.9 billion.