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Capitalfield Investment Group Ltd

Ahead of Next T-bills Auction Scheduled for 29th November, 2017

Issue on Offer/Summary

The Central Bank of Nigeria (CBN) is scheduled to hold a Treasury Bills (T-Bills) Primary Market Auction (PMA) on the 29thof November 2017. T-bills worth NGN117.18bn will mature in 91-day, 182-day, and 364-day instruments accordingly, while an equal sum is expected to be issued across the same tenors. The CBN is expected to auction NGN26.14bn, NGN11.01bn and NGN80.03bn in the 91-day, 182-day, and 364-day instruments respectively.

Outlook on Yields /Advised Stop Rates

The secondary market for Treasury bills has been characterized by bearish sentiments since the last Primary Market Auction (PMA) on the 15th of November 2017. Sell pressures were witnessed on all instruments save for the 9M instrument which recorded a yield decline of 0.29%. The 1M, 3M, 6M and 12M instruments witnessed yield increases of 1.10%, 0.20%, 0.15% and 0.11% respectively. Consequently, the average Treasury bills yield for the period advanced by 0.26%, to settle at 17.29% on the 23rd of November 2017.

Given the dearth of issuances of longer tenor instruments in OMO auctions, demand for the 364-day instrument has remained significant in recent Primary Market Auctions, although we note the decline in subscription levels over subsequent auctions. The 364-day instrument was oversubscribed by 1.30x at the last auction, while the bid to cover ratio on the 91-day and 182-day instruments were 1.01x and 1.00x respectively.

On the 20th of November 2017, the Federal Republic of Nigeria issued Eurobonds worth USD3.00bn, from its Global Medium Term Note Programme of USD4.50bn, split equally between the 10-year (6.500%) and 30-year (7.625%) series. The issues were well oversubscribed at the conclusion of the book build, with a total subscription amount of c.USD11.40bn, indicating an oversubscription of approximately 3.80x.

The proceeds from the auction are expected to be used to fund approved budgetary expenditures and also refinance domestic debt. We expect this to drive demand at the PMA in the near term, given the expectation of reduced domestic borrowing.

Moreover, the Monetary Policy Committee’s decision to maintain the MPR at 14% is expected to keep the yield environment attractive. Consequently, we expect demand level to remain buoyant at the next auction.

Investing through Meristem Wealth Management Limited

Meristem Wealth Management Limited charges a transaction fee of 0.25% of the principal amount invested, and there will be three (3) days prior notification before maturity for all Treasury Bills investments.

The income from investing in T-Bills is tax-free, so interest received is not subject to withholding tax and you will receive an immediate Investment confirmation letter for the Treasury bills. Also, note that the T-Bills certificates can be used as collateral for securing loans.

Participation Process

The T-bills Primary Auction bid holds twice in a month (i.e. every other Wednesday). The above likely stop rates are our estimates and might not necessarily hold true, as the final decision always lies with the CBN based on the auction process.

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