The Central Bank of Nigeria (CBN) will on Thursday, February 13, on behalf of the Debt Management Office (DMO) offer a total of N154.4 billion to investors by Dutch auction at the primary market.
A Dutch auction is a public offering auction structure in which the price of the offering is set after taking in all bids to determine the highest price at which the total offering can be sold.
The government security to be issued next week consists of N4.4 billion for 91-day tenor, N10 billion for 182-day, and N140 billion for 364-day tenor.
Consequently, the CBN directed all money market dealers to submit bids through its S4 WEB INTERFACE between 8.am and 11.00 am on Wednesday, February 12.
Ayodele Akinwunmi, relationship manager, corporate banking, FSDH Merchant Bank Limited, said investors’ interest would be high because of limited investment channels in the market with minimal risk.
The CBN said each bid must be in multiples of N1,000 subject to a minimum of N50,001,000 and that all authorised money market dealers could submit multiple bids.
A statement by the CBN says a bid may be for authorised money market dealers’ own account, non-money market dealers or interested members of the public.
While the result would be announced next week Wednesday, allotment letters would be issued for successful bids on Thursday, February 13, while payment for the successful bids would be made to participants’ account with the CBN on the same day.
“Going by the increase in rate across maturities in the last auction, I expect investors’ interest to be uptick in next week auction,” Akintunde Olusegun, analyst at Polaris Bank Limited, said.
There were sell-offs last week at the Nigerian Treasury Bills secondary market as investors reacted to the potential squeeze in system liquidity by about N 294.2 billion as at Friday, occasioned by the increase in the Cash Reserve Ratio (CRR) from 22.5 percent to 27.5 percent by the CBN.
According to analysts at Afrinvest Securities Limited, the bearish sentiments slowed towards the end of the week amidst the Primary Market Auction (PMA) and inflows from maturing OMO bills (about N 495.0bn). Subsequently, average yield across all tenors rose from 3.5 percent to 3.7 percent week-on-week. Major sell-offs were recorded on the short and mid tenor bills, particularly the 2-Apr-20 (+117bps), 12-Mar-20 (+46bps) and 16-Jul-20 (+21bps) maturities.
At the PMA on Wednesday last week, investors’ demand contracted across all tenors relative to that of previous auctions. While the significant decline in subscription levels was surprising, investors benchmarked yields to the FGN promissory notes which traded at higher levels. Consequently, stop rates across the short, medium and long-term instruments rose by 0.6 percent, 0.6 percent and 1.4 percent, respectively. The average bid to cover ratio was 1.1x with the 91-day tenors enjoying the most interest at 1.9x.
“We also expect trading activities to improve especially as investors fully digest the impact of the CBN’s new policy on CRR. Investors are thus advised to cherry pick relatively attractive offers as well as close alternatives such as short-term FGN bonds (with TTM of 2-3 years),” said Afrinvest analysts.
HOPE MOSES-ASHIKE
