CBN cuts T-bill rate as investors submit N3.63trn for one-year bill

Investor appetite for Nigeria’s longer-term government securities remained strong at the latest Treasury Bills auction, despite a reduction in the interest rate offered by the Central Bank of Nigeria.

At Wednesday’s primary market auction, investors submitted N3.63trn in bids for the 364-day Treasury Bill, accounting for about 96 per cent of the N3.79trn total subscriptions across the three maturities.

The strong demand came as the CBN reduced the stop rate on the one-year instrument to 17.15 per cent from 17.59 per cent at the previous auction, representing a 44-basis-point decline.

The regulator had offered N700bn through the auction, comprising N100bn each for the 91-day and 182-day bills and N500bn for the 364-day instrument. However, total bids exceeded the amount on offer by more than five times.

The 364-day bill attracted the bulk of investor interest, with subscriptions reaching 7.26 times the N500bn offered. The CBN eventually allotted N638.19bn, exceeding the initial offer by N138.19bn.

Despite the huge demand, only about 17.6 per cent of the total bids submitted for the one-year instrument were accepted. Investors quoted rates ranging from 16 per cent to 19.05 per cent, but the CBN settled at 17.15 per cent.

The outcome suggests that the high demand gave the regulator room to reject bids at higher yields while still raising more funds than originally planned.

Demand for the shorter-term bills was considerably weaker. The 91-day instrument received N103.32bn in subscriptions against N100bn on offer, with N89.10bn eventually allotted at an unchanged stop rate of 16.30 per cent.

The 182-day bill recorded the weakest demand, attracting N52.93bn against the N100bn offered. The CBN allotted N35.59bn at a stop rate of 16.50 per cent.

In the secondary market, yields stood at 17.45 per cent for the 91-day bill, 17.05 per cent for the 182-day instrument and 17.24 per cent for the 364-day bill.

Financial sector analyst Jimbe Asalor said the concentration of investor demand around the one-year bill indicated a preference for securing relatively attractive returns over a longer period rather than continually rolling over shorter-term investments.

He said the auction also demonstrated the CBN’s ability to raise funds at a lower cost when demand is heavily concentrated on a particular maturity.

According to Asalor, the decision to allot N638.19bn at 17.15 per cent showed that the CBN was able to increase borrowing while simultaneously lowering the rate on the instrument.

He noted that the narrow gap between the 17.15 per cent auction rate and the 17.24 per cent secondary-market yield suggested that market expectations were broadly aligned with the outcome of the auction.

Lagos-based economist Chukwunonso Iheoma said sustained demand for longer-dated Treasury Bills could gradually reduce government borrowing costs and reinforce expectations of lower interest rates in the future.