PMA: Analysts Predict Heavy Patronage on Account of High Liquidity

Admin 11-Sep-2020 Business

PMA: Analysts Predict Heavy Patronage on Account of High Liquidity

Ahead of the Central Bank of Nigeria‘s Primary Market Auction (PMA) schedule to hold Wednesday, analysts said they expect elevated system liquidity to spur robust patronage.

Analysts explained that lack of alternative investment windows has increased demand pressure for low yield financial instrument.

The situation is connected to the low interest rate environment which has seen yields in the fixed income market dropping significantly.

However, as scheduled the CBN will hold a Treasury Bills (T-Bills) Primary Market Auction (PMA) on the 10th of September 2020.

Existing T-Bills worth NGN148.06 billion will mature and are expected to be reissued in NGN4.41 billion, NGN14.00 billion and NGN109.65 billion across the 91- day, 182-day, and 364-day tenored instruments.

In a note, Meristem Securities recalled that the last treasury bills primary market auction (PMA) followed the trend established so far in 2020.

“We witnessed strong participation, evidenced by bid to cover ratios of 1.53x, 1.77x and 0.92x across the three respective maturities”, the firm stated.

PMA: Analysts Predict Heavy Patronage on Account of High Liquidity

The stop rate for the 182-day and 364-day instruments however, inched higher to 1.80% and 3.34% compare to 1.38% and 3.19% at the previous auction respectively, while the 91-day dropped to 1.15% as against 1.20% at the previous auction.

Meristem noted that the Secondary market for T-bills has been largely bullish in the year.

The firm held that dearth of attractive investment vehicles in the domestic capital market and ample liquidity in the financial system have paved way for sustained buying pressure.

Since the last auction, however, the bears have been on rampage, with average T-bills yield climbing to 2.10% against 1.80% as at the 4th of September 2020.

In Q3:2020, analysts recognise that the global economy has begun on a journey to recovery, given the resumption of economic activities and the anticipated breakthrough in vaccine development.

Although, there are impending recessions across economies given the earlier global shutdown had triggered a significant economic downturn, Meristem noted.

The firm stated that the Nigerian economy was not insulated, evinced by 6.1% contraction in Q2:2020 amid expectation of a further contraction in Q3:2020.

Meristem said the outlook, however, seems to hold some silver lining for Q4:2020, following the progress seen so far in the development of vaccines and the relative stability in oil prices, which is expected to support growth recovery and moderate overall 2020 contraction.

On the other hand, despite the optimism, there are still downside risks — the likelihood of a protracted vaccine trial and the fear of a second wave of the virus which could trigger another round of lockdowns.

Nonetheless, analysts expects elevated liquidity in the financial system comprises Open Market Operations maturities of NGN571.48 billion, T-bills maturity: NGN128.06 billion to spur robust patronage at the primary market auction.

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