CBN Sell N687.8bn TBs in First 6 Weeks of 2022 on improved Liquidity, Demand

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Following improved system liquidity supporting demand, the Central Bank of Nigeria (CBN) within the first six weeks of 2022, sold N687.8 billion Treasury Bills at its primary market auctions, and repaid a total of N227.35billion during the period.

THISDAY checks revealed that the CBN conducted three primary market auctions in January 2022 and once so far in first two weeks of February.
The CBN in January conducted a total of N472.8billion primary market auctions, and so far N214.96billion primary market auctions were conducted in February.

In January of 2021, the CBN had conducted a primary market auction worth N455.8billion and in February prior year, a total of N480.7 billion primary market auctions were carried out by the apex banking regulatory body.
However, the CBN in the last six weeks sold N249billion at its Open Market Operation (OMO) sales, and reported N609.05billion OMO repay.

In its latest report, Analysts at Cordros Capital noted that the Treasury bills secondary market ended the trading week on a bullish note, following the improved system liquidity supporting demand, moderations in the 1-year paper stop rate at Wednesday’s NTB primary market auction and market participants’ movement to the secondary market in a bid to fill lost auction bids.

They added that: “Consequently, the average yield across all instruments contracted by 10basis points to 4.6per cent. Across the market segments, the average yield at the NTB segment settled lower by 4bps to 4.3per cent. At the NTB auction, the CBN offered N98.01 billion for sale with a total subscription of N446.31 billion.

“Accordingly, the CBN allotted N1.91 billion of the 91-day, NGN1.82 billion of the 182-day, and NGN211.23 billion of the 364-day bills – at respective stop rates of 2.48per cent, (unchanged), 3.30per cent (unchanged), and 5.20per cent (previously 5.40per cent).

“Elsewhere, the average yields at the OMO segment expanded by 16bps to 5.6per cent. The CBN also offered and allotted N80.00 billion worth of OMO bills to participants and maintained stop rates across the three tenures, as with prior auctions.”

They added that: “We expect yields to trend marginally higher in the coming week as we expect a shortfall in system liquidity. With the federal government’s increasing borrowing to finance its budget deficit, domestic borrowing was pegged at N6.39 trillion in 2022, as against N6.7 trillion in 2021. The 2022 budget of federal government comes with a huge debt components and this saw the apex bank to support with monthly primary market auctions.”

Meanwhile, analysts believe the current trend will continue, as the federal government would sustain borrowing in 2022 as data obtained from the Central Bank of Nigeria (CBN) showed primary market auction rose significantly by 162 per cent in 2021 compared to the previous year.

Analysis of CBN data revealed that the CBN had conducted primary market auctions three times every month in 2021, expect for May and September when primary market auctions were conducted four times.
The data showed that the CBN repaid N3.68 trillion when the instrument matured in 2021; an increase of 65.2 per cent compared to N2.23 trillion repayments in 2020.

Demand for Treasury Bills surged in 2021 as yield-hungry investors scampered away from stock market into risk-free government securities.

Commenting, the Managing Director of Kairos Capital, Mr. Sam Chidoka said the trend would continue and cautioned that it was an unsustainable path.

According to him: “Our borrowing in likely to continue in the same traction for the simple reason that we have a budget for 2022 that is a deficit budget. We have a budget of about N17 trillion and N10 trillion is supposed to come from identified revenue heads. So, you probably have N6 trillion to N7 trillion budget deficits that has to be funded by borrowing both local and foreign.

“So, we are likely to see the same traction as we saw last year. But the question is whether our payment sources commensurate with what we are borrowing? The question is whether our debt is sustainable or less thereof and I think that is becoming less sustainable and we have to find a way of either cutting government expenditure or increasing our revenue base in such a way that we can fund some of the things we want to do especially on the capital side.

Chidoka added: “Or borrowing exclusively for capital part of the budget and then using those to capitalise revenue, but I see that we are borrowing for debt service, recurrent expenditure and I don’t think that it is sustainable. So, I think we are going to see the same high level of borrowing in 2022.”

On his part, Head Financial Institutions’ Ratings Agusto & Co, Mr. Ayokunle Olubunmi, said the trend would continue and may be more exaggerated because of plans towards the upcoming general elections.

He said: “It is not far-fetched from what we are seeing as we have seen increased government borrowing basically because of the budget deficit that we’ve had. Government is spending more than they are earning and year-in year-out in the last four years, you see that the projected revenue is way higher than the actual as they have been doing well in terms of generating revenue.

“So whenever your expenditure is more than your income, definitely you actually will see that there would be borrowing. And unfortunately, we are still going to continue on the same path. The trend is going to continue till 2023 because we have elections in 2023 and the major campaign for election would be done in 2022 and whether we like it or yes, the expenditure and campaign funding might still come from projects and more.”


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