CBN Hacks Rates on Treasury Bills as Inflation Falls
Discount rates on Nigerian Treasury bills fell sharply across standard maturities as investors bet large on naira assets after inflation plunged. The Central Bank of Nigeria (CBN) conducted a primary market auction midweek where the authority offered N700 billion worth of Treasury bills across 91-day, 182-day, and 364-day tenors.
Despite a huge liquidity shortfall of more than N1 trillion in the money market, investors subscriptions came heavy, according to some traders. Subscriptions came more than threefold as the interest rate outpaced the inflation rate for the first time in a long time.
Investors submitted more than N2.4 trillion for Nigerian Treasury Bills at the midweek auction as market dynamics begin to shift. On the back of sustained appetite for long tenor bills, demand was heavily skewed toward the 364-day paper, which accounted for 95% of total subscriptions recorded.
Hence, the Apex Bank allotted N774.13 billion Nigerian Treasury bills across 91-day, 182-day, and 364-day tenors, 11% above the amount for subscriptions, of about ₦2.408 trillion. Stop rates for the 91-day fell by 100 basis points to 17%, according to auction results.
As the inflation rate already fell behind the monetary policy rate, the authority priced down spot rates on Nigerian treasury bills across standard maturities. Real return has become positive. e after inflation fell to 24.48%, racing behind the benchmark interest rate of 27.50%.
The discount rate on 182-day Treasury bills fell by 50 basis points to 18%, while the rate on 364-day paper fell by 189 bps to 18.43%. At the Treasury bills auction conducted on February 5, 2025, the Central Bank of Nigeria (CBN) offered N570.00 billion across three maturities, slightly exceeding the N530.00bn issued at the January 22, 2025 auction.
Investor demand was high, with total bids amounting to N4.06 trillion, a significant jump from N2.54 trillion in the previous auction, Meristem Securities Limited said in its pre-auction note. Analysts said this marked increase in demand was driven by improved system liquidity, which stood at N201.55 billion as of February 4, 2025, and prevailing investor sentiment.
At the end of the Treasury Bills auction, the CBN allotted N670.00 billion, lower than the N756.02 billion in the previous auction. Meristem Securities Limited stated that this led to a bid-to-cover ratio of 4.80x, which was higher than the 3.35x recorded in the earlier auction, supported by improved liquidity and investors’ general expectations of lower rates.
As anticipated, the stop rates for the 91-day and 182- day bills were unchanged at 18.00% and 18.50%, respectively. In contrast, the yield on the 364-day bill decreased by 148 basis points to 20.32%, down from 21.80% at the prior auction.
This decline in the 364-day rate signals increased demand for longer-term securities, likely driven by investor strategies to secure higher yields amid expectations of continuous rate cuts in subsequent offer #CBN Hacks Rates on Treasury Bills as Inflation Falls Yield on Nigerian Treasury Bills Falls ahead of Rebase Data
