364-day spot rate cut to drive asset switch as CBN holds auction

By Olu Anisere

A FURTHER slide in 364-day treasury bills spot rate could drive asset switch that will drive equity market rally as the Central Bank holds primary market auction Wednesday, according to analysts report from United Capital.

The Central Bank of Nigeria (CBN) is scheduled to conduct a Primary Market Auction (PMA) to roll over N138.2 billion worth of maturing treasury bills today.

Analysts said in the review that following the upward pressure on interest rates in the first half of the year, sovereign debt managers have leaned towards driving sustained downward pressure on the yield environment.

This comes as the Federal Government’s cost of funding continues to pile pressure on the budget performance. To reduce pressure on the debt service costs, Debt Management Office has continued to make deliberate efforts to slow down down interest on fixed income instruments.

Analysts noted that in the first half of 2021, the FG spent about 90.0% of its revenue on debt servicing with strong issuance recorded in the Treasury bills space to raised N1.81 trillion.

At the previous auction, the Central bank sold N307.3 billion worth of bills as against N157.2 billion offered.

Overall, the auction received total bids of N394.1 billion as investors’ appetite for bills remained strong. Notably, the 91-day and 364-day bills were oversubscribed by 1.6x and 3.0x, respectively.

On the flip side, investor interest for the 182-day bill was lukewarm posting a subscription rate of 0.7x. Stop rates remained unchanged from the previous auction at 2.50% and 3.50% for the 91- day and 182-day bills.

While stop rates for the long-tenor paper continued to moderate, dipping by 55 basis points to 6.80% from 7.35%.

Ahead of the PMA, United Capital analysts said they expect investors’ appetite to remain robust, thus driving sustained oversubscription and moderation of stop rates for the 364-day paper.

“We expect demand for bills to spill into the secondary NTB market, sparking bullish sentiment. we are cautiously optimistic that the further moderations in the stop rates at PMA’s could serve as a potential trigger for a potential asset switch and rally in the equities market”, analysts said.

https://dmarketforces.com/364-day-spot-rate-cut-to-drive-asset-switch-as-cbn-holds-auction/