CBN, DMO Raise N9.20trn for Federal Govt. in 8-Month
In the last eight months, the Central Bank of Nigeria (CBN) and Debt Management Office (DMO) have raised a total of N9.2 trillion from the local debt capital market. Amidst rising balance sheet funding costs, the apex bank sold Treasury bills worth N3.34 trillion from the beginning of the year to date, according to CSL Stockbrokers market note.
The investment firm noted that in the month of August 2022, Nigeria’s lender of last resort sold a total of N446.15 billion in Treasury bill auctions. The auction result indicates that the amount sold was 9.47% higher than the N407.55 billion allotted in June amidst Nigeria’s rising inflation rate.
In its money market note, CSL Stockbrokers said for a 91-day tenor, the CBN sold a total of N3.43 billion in August 2022 compared to N5.97 billion sold in July 2022, a decline of 43%.
For the 182-day tenor, traders said the amount sold increased by 319% to N11.52 billion in August 2022 from N2.75 billion in July 2022 while for the 364- day tenor, the amount sold increased by 8% to N431.19 billion from N398.83 billion in the previous month.
The 364-day bills made up 94.21% of total sales as investors continued to seek higher yield investment opportunities, CSL Stockbrokers stated. Market analysts noted that from the beginning of the year to date, the apex bank has sold a total of N3.34 trillion worth of Treasury bills.
The sale was 34% above the N2.5 trillion offered for sale during primary market auctions conducted in the period. CSL Stockbrokers said as expected, the sales in August were at higher costs as stop rates increased steadily.
The 91- day stop rate increased to 4.0% at the August 24 primary market auction from 3.5% at the August 10 auction, it was 2.8% on July 27, and 2.75% on July 13. READ: Yield on Nigerian Govt. Bond Advanced ahead of DMO Auction
Similarly, the 182-day stop rate increased to 5% as of 24 August from 4.5% on August 10, as against 4.1% spot pricing on July 27, and 4% on July 13 while the 364-day stop rate increased to 8.5% as of August 24, 2022, from 7.45% on August 10, with spot pricing of 7.0% on July 27, and 7.0% as of July 13.
Year-to-date, analysts note showed that the Central Bank of Nigeria has sold a total of N800 billion via the Open Market Operations (OMO). This translates to an increase of 13% over the N710 billion offered.
However, there were no OMO auctions in April, July, and August. Beyond, the short-term instruments, the Federal Government sold a total of N1.72 trillion in FGN Bonds, 9.41% over the N1.58 trillion offered for sale, according to the note.
In all, the Federal Government sold a total of N5.86 trillion year to date, translating to 22.58% above the N4.78 trillion offered for sale.
“While the increase in Treasury bill yields on the back of the steady increase in inflation and hike in the Monetary Policy Rate is expected, we however note that the Federal Government currently has limited capacity to accommodate any significant increase in the cost of borrowing”, CSL Stockbrokers said in the note.
The Minister of Finance, Budget & National Planning, Zainab Ahmed, had earlier noted that debt servicing cost of N1.94 trillion as of April surpassed federal total revenue of N1.63 trillion for the same period. MarketForces Africa reported that spot rates on Nigerian Treasury bills have increased after two times benchmark interest rate hikes between May and July.
The transition that occurred from low to high-interest rate environment has triggered yields repricing in the fixed income market, a development that has forced some funds out of risky equities space.
The apex bank is noted to sell short-term debt instruments to raise funds for the Nigerian government via treasury bills issuance. On the other hand, Debt Management Office raises long-term funds to help government close its funding gap.
