Oversubscription at NTB auction crashes stop rates

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Despite rising negative real returns, the demand for Nigerian treasury bills (NTBs) has rocketed, thereby crashing stop rates.

Nigeria’s interbank rate has declined by over 1,000 basis points in less than a month following increased naira liquidity in the financial market, paving the way for businesses to access cheaper funding.

The opening balance of commercial banks and merchant banks as of July 13, 2023 was N688.06 billion, representing a 299.76 percent increase over N172.11 billion a month ago, data from the Central Bank of Nigeria (CBN) showed.

“There is high naira liquidity in the market at the moment. And some companies are able to access cheaper funding as a result,” said Ayodele Akinwunmi, Relationship Manager, Corporate Banking at FSDH Merchant Bank Limited.

“I believe this will be temporary because of the current and expected high inflation rate in the country which will require monetary policy tightening,” he added.

According to analysts, the liquidity emanated from the Cash Reserve Ratio refund to banks by the CBN and the N786.16 billion allocated by the Federal Account Allocation Committee to the federal, states and local governments in May.

The NTB auction held on July 12, 2023, had a total subscription of N681.86 billion against N141.77 billion offered, showing investors’ preference for risk-free instruments.

The high subscription was across the three tenors: N5.816 billion for 91-day, N31.38 billion for 182-day and N654.62 billion for 364-day, driving stop rates lower for all three tenors.

The 91-day, 182-day and 364-day stop rates dropped to 2.86 percent, 3.50 percent and 5.94 percent compared to the previous auction as Debt Management Office (DMO) sold only N147.77 billion offered.

Recently, dealers said system liquidity has determined the direction of the NTB auction subscription, suppressing other main determinants.

However, analysts expect immediate future monetary policy outcomes to change the market’s direction; a future rate hike would dial down subscriptions as liquidity stumbles.

Meanwhile, the DMO has released its Federal Government of Nigeria (FGN) Bonds offer circular for July 2023 Primary Market Auction, indicating plans to offer FGN bonds worth N360 billion through the re-opening of 10-year FGN APR 2029 (N90 billion), 10-year FGN JUN 2033 (N90 billion), 15-year FGN JUN 2038 (N90 billion) and 30-year FGN JUN 2053 (N90 billion) tenors.

The bond auction is scheduled to be held on July 17 with settlement on July 19, 2023.

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