Today, Wednesday, November 23, 2022, the primary market auction (PMA) for treasury bills is expected to be extremely busy.
This is because the T-bills are being sold just one day after the Central Bank of Nigeria (CBN) raised the country’s benchmark interest rate by 1% to 16.5 % from 15.5 %.
On Tuesday, November 22, the central bank’s governor, Mr Godwin Emefiele, stated that the team agreed “to continue to tighten [the rate], but at a somewhat lower rate, noting that tightening the stance of policy would narrow the negative real effective interest margin and thus improve market sentiment and further restore investor confidence.”
Today, the CBN is expected to auction N212.82 billion in treasury bills to market participants, with N2.28 billion for the 91-day bill, N1.25 billion for the 182-day bill, and N209.29 billion for the 364-day bill.
The bank left the stop rates of the short and mid-term instruments unchanged in the previous exercise two weeks ago, but reduced the stop rate of the long-term bill by 0.51 percent. As a result, the rates cleared at 6.50 percent, 8.05 percent, and 13.99 percent for three-month, six-month, and 12-month bills, respectively.
With the recent rate hike, investors expect the apex bank to raise the stop rate to make the debt instrument more appealing and keep the subscription rate high.
This week, the Debt Management Office (DMO) announced a subscription for the Series V of the sovereign Sukuk worth N100 billion, with a 15.64 percent interest rate offered to subscribers.
With this in mind, and in order to attract investors, the CBN is expected to raise the treasury bills stop rate to 15% as traders seek investment instruments with returns closer to the inflation rate of 21.09 percent.
As stated by the MPC yesterday, the MPR was raised in order to reduce the negative real effective interest margin, which is currently at -4.59 percent.
