Boosted by investors quest for higher returns, the Central Bank of Nigeria (CBN) has raised N11.29 trillion worth of Nigerian Treasury Bills (NTBs) across its auctions in 11 months of 2024 as stop rate on 364-day increased to 23.5 per cent.
The N11.29 trillion raised during the period under review is 106.4 per cent higher than the N5.47 trillion raised in 11 months of 2023.
NTBs or T-Bills as they are sometimes called are short-term debt securities issued by the government to make up for budget deficits and fund projects. In Nigeria, NTBills are issued by the CBN on behalf of the federal government.
The amount raised between January and November 2024 indicates continuing confidence among investors in the Nigerian government's debt instruments.
By tightening its monetary policy through higher interest rates and large NTBs auctions, the CBN aims to curb raising inflation and stabilise the foreign exchange rate, thereby fostering a more balanced economic environment.
The Mr. Olayemi Cardoso-led Monetary Policy Committee (MPC) of the CBN has jacked up the interest rate by 870 basis points to 27.50 per cent from 18.75 per cent at the start of the year to combat rising inflation, this has led to an equal increase in the yields of Treasury bills compared to last year.
The primary market auctions showed that CBN in the 11 months under review offered N6.42 trillion worth of NTBs to investing public but eventually recorded a total subscription worth N34.16 trillion.
The total sale of N11.29 billion in NTBs in 11 months of 2024 underscores a robust appetite for Nigerian sovereign instruments, with a significant over-subscription, especially in the longer tenor, suggesting that investors are looking for higher returns and are willing to engage with longer maturity profiles.
THISDAY observed that investors demand for long maturities NTBs continued to grow as its stop rate reached 23.5 per cent in November 2024, the highest so far in 2024.
The variation in stop rates across tenors also offers insight into investor sentiment regarding short-, medium-, and long-term economic outlooks.
While the lower stop rate on the 182-day bill suggests anticipation of stable interest rates, the higher stop rate on the 364-day NTBs could imply a cautious stance towards potential future economic volatilities.
Investors' diversified demand across the different maturities of NTBs reflects strategic positioning for various investment horizons and signals a healthy trading environment in the Nigerian debt market.
Demonstrating the highest demand in the 11 months under review, the 364-day NTBs had an offer of N4.64trillion, with a total subscription of N30.67 trillion, far exceeding the other tenors.
However, the CBN allotted N8.86 billion at a stop rate of 23.5 per cent as of November 20, 2024 from 8.399 per cent January 2024, indicating investors' willingness to hold longer-term bills despite a higher yield reflecting the risk premium for extended maturities.
Analysts have attributed the high yield to the factor of demand and supply, stressing that the government deliberately increased NTB supply to encourage higher stop rate at 23.5 per cent or that some institutional investors held back their bids.
"The essence is to encourage foreign inflows that could help improve dollar liquidity in the foreign exchange market and cause a moderation in Naira exchange rate until the market attains equilibrium level. I have no doubt that this is the most appropriate decision on the part of CBN and the government at this time. There's a need to improve dollar liquidity that will eventually force domestic interest rates to moderate subsequently. The higher interest rate will likely filter into the equity market to temporarily moderate the bullish sentiments in that market as well," said Investment Banker & Stockbroker, Mr. Tajudeen Olayinka
Also, analysts at United Capital in a report titled, "Balancing Act: Nigeria's Path to Economic Stability H1-2024 Economic Outlook Report," had stated that they expected short term rates in H1 2024 to gradually retrace lower, weighed by CBN's elevated cost of capital and improved system liquidity prospects.
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"However, factors like the CBN's hawkish stance will look to serve as tailwind to keep rates elevated around current levels in Q3-2024, pending the crystallisation of the high base effect on inflation," the report added.
Meanwhile, the CBN had announced that it is set re-issue N2.2 trillion worth of maturing NTBs in the fourth quarter of 2024.
Towards November 2024 trading activities, the NTB at the secondary market had a bearish sentiments as market players reacted to the 25 basis points increase in the monetary policy rate.
Accordingly, the average yield across all instruments expanded by 71basisi points to 26 per cent. Across the market segments, the average yield declined by 113basis points to 25.2 per cent in the NTB segment.
"Based on our expectation of a possible liquidity deficit in the coming week, we expect demand for bills to wane, causing yields to trend higher," analysts at Cordros Research added.
