The Central Bank of Nigeria raised the interest rate on one-year Treasury bills to 17.59 percent on Wednesday, despite investors submitting N4.19 trillion in bids for just N500 billion on offer.
Results of the Treasury Bills Primary Market Auction showed that the 364-day bill closed at a stop rate of 17.59 percent, up from 17.35 percent at the previous auction, translating to a true yield of 21.34 percent. The bill attracted N4.19 trillion in subscriptions against an offer of N500 billion, while the CBN allotted N1.26 trillion.
“The demand remains exceptionally strong, particularly for the 364-day instrument, but the higher stop rate suggests investors were willing to demand a slightly higher return despite the strong appetite for government securities,” said Ayodeji Ebo, an investment professional.
The latest auction represents a reversal from the previous auction, when the 364-day stop rate fell by 35 basis points to 17.35 percent despite subscriptions of N3.38 trillion. At Wednesday’s auction, subscriptions for the one-year bill rose by about N808 billion, yet the clearing rate increased by 24 basis points.
The CBN also allotted N240 billion more in one-year bills than at the previous auction, taking total allotment to N1.26 trillion. The amount allotted was more than twice the N500 billion initially offered, highlighting the extent to which the central bank accommodated demand at the longer end of the curve.
Demand for the shorter tenors was mixed. The 91-day bill attracted N162.21 billion in subscriptions against N100 billion offered, with N148.57 billion allotted. Its stop rate remained unchanged at 16.30 percent.
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The 182-day bill, however, recorded weaker demand, receiving N63.97 billion in subscriptions against N100 billion on offer. The CBN allotted N47.48 billion, while the stop rate remained unchanged at 16.50 percent.
The divergent demand across the tenors reinforces investors’ preference for locking funds into longer-dated government securities. While subscriptions for the 364-day bill jumped above N4 trillion, demand for the 182-day instrument fell by more than N40 billion from the previous auction.
The auction took place without any Treasury bill maturities, meaning the government’s N700 billion auction programme represented a net liquidity mop-up from the financial system. This differs from auctions where maturing bills provide investors with funds that can be rolled over into new securities.
The outcome also comes against a backdrop of easing secondary-market Treasury bill yields. Meristem Securities had noted ahead of the auction that average secondary-market T-bill yields had fallen to 18.09 percent from 18.16 percent at the previous auction, reflecting sustained demand for government securities.
The investment firm had expected healthy participation, particularly in the 364-day tenor, but projected that stop rates would remain broadly stable, with only a slight upward or downward movement depending on market liquidity.
Wednesday’s result suggests that while demand for sovereign securities remains strong, investors are still sensitive to the return offered, particularly on longer-dated instruments.
For the federal government, the strong subscription levels provide access to substantial domestic liquidity, but the higher one-year stop rate means borrowing through Treasury bills became marginally more expensive than at the previous auction.
The combination of stronger demand and a higher clearing rate also suggests that investor appetite alone may not be sufficient to push short-term government borrowing costs lower. Market liquidity, the CBN’s liquidity-management operations and investors’ return expectations will continue to influence the direction of Treasury bill yields in coming auctions.
