CBN cuts T-bill rate amid N3.63tn demand

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Investors are increasingly positioning for longer-term returns in Nigeria’s fixed-income market, with the latest treasury bills auction showing an overwhelming preference for the one-year government security.

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At the Central Bank of Nigeria’s (CBN) primary market auction on Wednesday, investors submitted N3.63tn for the 364-day T-bill, representing 95.9 per cent of the N3.79tn total bids received across the three maturities.

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The demand came despite the CBN lowering the stop rate on the one-year instrument by 44 basis points to 17.15 per cent, from 17.59 per cent at the previous auction.

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The auction results point to a significant shift in investor appetite towards longer-dated government securities, even as demand for shorter-tenor instruments remained subdued.

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The CBN had offered N700bn across the three maturities, comprising N100bn each for the 91-day and 182-day bills and N500bn for the 364-day bill.

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However, total subscriptions reached approximately N3.79tn, more than five times the amount offered.

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The PUNCH that the 364-day instrument was the clear outlier at the auction, receiving bids equivalent to 7.26 times the amount offered.

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The CBN ultimately allotted N638.19bn, exceeding the N500bn offer by N138.19bn. Despite the additional allotment, only about 17.6 per cent of total bids submitted for the instrument were accepted.

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Investors quoted yields between 16.00 per cent and 19.05 per cent, but the CBN settled at 17.15 per cent, suggesting that the level of demand allowed the regulator to reject more expensive bids.

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The development is significant because the CBN achieved a lower borrowing rate even after receiving exceptionally strong demand for the security.

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The contrast was stark at the shorter end of the curve. The 91-day bill attracted N103.32bn in subscriptions against N100bn offered. The CBN allotted N89.10bn at an unchanged stop rate of 16.30 per cent.

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The 182-day bill performed even more weakly, attracting only N52.93bn against N100bn on offer. The CBN allotted N35.59bn, while the stop rate remained at 16.50 per cent.

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Secondary-market yields for the three instruments stood above their respective auction stop rates, at 17.45 per cent for the 91-day bill, 17.05 per cent for the 182-day bill and 17.24 per cent for the 364-day bill.

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According to a financial sector analyst, Jimbe Asalor, the concentration of bids in the one-year instrument suggests investors may be placing greater value on locking in relatively attractive yields over a longer period rather than repeatedly rolling over shorter-term securities.

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He noted that the latest auction also demonstrates “the CBN’s ability to borrow more cheaply when demand is concentrated around a particular maturity.”

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He added that by accepting N638.19bn on the 364-day bill at 17.15 per cent, the CBN borrowed above its initial offer while simultaneously cutting the rate by 44 basis points.

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“The nine-basis-point difference between the auction stop rate and the 17.24 per cent secondary-market yield also indicates that the one-year segment is now trading relatively close to market expectations.”

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A Lagos-based consultant economist, Chukwunonso Iheoma, said if the preference for longer-dated treasury bills persists, the development could provide further support for a gradual decline in government borrowing costs while strengthening expectations of eventual interest-rate cuts.

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