CBN Sells 1-Year T-Bills for 6.49% after Rate Hike
Godwin Emefiele, CBN Chief

CBN Sells 1-Year T-Bills for 6.49% after Rate Hike

Following the 150 basis points interest rate hike earlier in the week, the Central Bank of Nigeria (CBN) sold one year Treasury bills for 6.49% midweek, from 4.75% as market participants demanded higher returns.

The fixed income market had been lukewarm for the most part of the first half of 2022 despite an expectation of yield repricing due to the expectation of increased borrowing by the Federal Government (FGN) from the local debt capital market.

The inflation bite has continued to widen real return on fixed interest securities assets, dragging overall debt capital investors’ portfolio returns lower. The market has been waiting for a better day and local banks have been playing cautiously in the space following the low-interest rate environment engineered by the CBN.

Liquidity has been strong after the apex bank banned non-bank and certain individuals from participating in the OMO market transactions, sending spot prices lower as free cash flows around seeking alternative investment windows.

Already, the Debt Management Office has raised about N1.6 trillion in the year, about half of total local borrowings expected toward the financing of the fiscal year 2022 budget deficit.

For more than two years, the monetary policy committee of the CBN had kept the benchmark interest rate at 11.5% despite inflation pressures in the financial market. Just this week, the monetary policy rate was adjusted to 13% to combat inflation.

At the primary market auction of the CBN, fixed interest securities investors demanded a spot rate of 10.25%. This compares with a yield of 4.75% the one-year maturity fetched at a previous auction.

In the money market segment, the strain on the financial system liquidity lifted short term rates higher. The average interbank rate spiked amidst liquidity pressures as open buyback and overnight lending rates jump. 

Data from the FMDQ Exchange showed that the overnight lending rate expanded by 100 basis points to 13.5%.

Meanwhile, amidst the tumultuous reaction to an interest rate hike, traders said bearish sentiment persisted in the Nigerian Treasury bills secondary market on Wednesday. READ: CBN Sells N50 Bln OMO Bills at 7%, 8.5% and 10.10%

In the segment, the average yield expanded by 12 basis points to 3.9%, according to a market note from Cordros Capital Limited.

The investment firm stated that across the curve, the average yield was unchanged at the short and mid segments but expanded at the long (+8bps) end as participants sold off 337 day to maturity (+501bps).

Similarly, the average yield expanded by 30 basis points to 4.4% in the OMO segment. Elsewhere, trading activities in the secondary market for FGN Bonds were mixed, albeit with a bullish tilt, according to market reports reviewed by MarketForces Africa.

Consequently, the average yield pared by a basis point to 11.0%. Across the benchmark curve, the average yield contracted at the short (-3bps) end as investors demanded the APR-2023 (-23bps) bond but closed flat at the mid and long segments. #CBN Sells 1-Year T-Bills for 6.49% after Rate Hike