Just last week, reports from a section of the foreign and local media reported that Naira scarcity loomed in the Nigerian economy. It appears though, that the scarcity has turned to surplus in more too familiar market.
Data from the latest CBN’s treasury bills auction of October 4th 2017 reveals the bank sold treasury bills worth about N130 billion. About N106 billion of this amount was sold in 364 days tenors.
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A deeper look reveals the Central Bank received a bid of about N465 billion for treasury bills on offer of about N68 billion, for its 364 day tenor. This represents a 6.8x bid to offer cover.
What this means?
As markets contend with a so-called scarcity of Naira, the CBN received bids in excess of 6.8x the amount it intended to sell for its one year bills. This is the highest multiple we have seen since August 2012, suggesting that the market is searching for safe investments that can provide the best returns. Some investors are perhaps believing that the era of higher interest rates for treasury bills is gradually coming to an end.
What it also means
Investors can’t find where to stash excess naira and are rushing to buy one year treasury bills in anticipation that interest rates may crash very soon. This is also considering that bank lending to the private sector has stalled this year, as banks prefer to scoop FGN bonds and other government securities available in the market.
This also means the plans of the CBN to swap some naira debts for foreign denominated bonds could have sent jitters to yield hungry investors.
The government is the largest seller of debt securities in the market thus reducing naira debts in exchange for increasing dollar denominated debts means there are now limited options for investors holding naira to invest in.
Implication
The immediate implication is that treasury bills yields will might continue to trend downwards. With bids outpacing offers by almost 7x, we won’t be surprised to see Treasury Bills rate continue to fall below inflation rate. The last time we saw anything close to this level of bids was on February 1 this year when a bid of N447billion was put forward for an offer of about N117 billion
Implication for stocks
If yields continue to drop, we won’t be surprised to see investors pour into the stock market in search of returns. Apart from the bond and securities market, the only financial market where traders can earn returns in the double digits is the stock market. This could result in a bull run in the coming weeks.