CBN Sells T-Bills at 12.15% After Interest Rate Hike
The Central Bank of Nigeria (CBN) repriced Treasury bills at higher spot rates at its midweek primary market auction following its sustained monetary policy tightening. At the auction, the CBN offered instruments worth N264.33 billion for subscription. The total sum was split as N1.74 billion for the 91-day, N1.26 billion for the 182-day, and N261.33 billion for the 365-day bills.
The auction recorded a total subscription of N398.17 billion. Total subscription for Nigerian Treasury bills by local investors was skewed towards the longer-dated bill worth N383.88 billion; accounting for 96.4% of the total subscription.
Noting changing market dynamics, the apex bank doubled down spot rates on 364-day bills to 12.15% last week, up by 6.21% after it announced a 25 basis points interest rate hike to 18.75%. Consequently, investors in the secondary market reacted with selloffs, pushing the average yield upward after waiting for a long time to see fresh yield repricing as the naira asset remains exposed to inflation pressures.
At the close of the week, the average yield on Nigerian Treasury bills surged to 7.35%, an upsurge that was supported by another monetary policy tightening. Fixed income traders at Cordros Capital Limited said they attribute this week’s performance to dampened interest in bills as market players took profits off some positions.
Recall that the monetary policy committee of the CBN hiked the benchmark interest rate to 18.75% in an effort to continue to fight Nigeria’s rising inflation rate. Consider ineffective for a cost-push inflation uptrend, the apex bank has cumulatively hiked the monetary policy rate by 725 basis points since the first quarter of 2022 when it was 11.50%.
In a bid to optimise returns on their respective portfolios, the market saw selloffs of Nigerian Treasury bills, led by deposit money banks seeking to augment their liquidity positions. Last week, the financial system recorded a resurgence of liquidity pressures, pushing short-term benchmark interest rates higher in the absence of significant inflows from matured bills. However, the liquidity pressure was reversed due to large inflows.
Data from FMDQ showed that the overnight rate contracted by 19.6% to 1.4% week on week, as the system liquidity was supported by inflows from Federal Account Allocation Committee (FAAC) disbursement worth N561.49 billion and FGN bond coupon payments totaled N126.00 billion. As of Friday, the average system liquidity closed higher at a net long position of N363.38 billion as against a net long position of N103.19 billion in the prior week.
.” We expect the liquidity in the system to remain buoyant next week, barring any significant outflows. Hence, we believe the overnight rate will remain depressed”, Cordros Capital told investors in an update. MarketForces Africa reported that the CBN refinanced N264.33 billion worth of treasury bills, fully offsetting the matured instruments. Demand came higher amidst a dearth of investment options, though rising inflation has drastically reduced real return on investment.
The CBN’s primary market auction results showed that stop rates for 91-day bills were priced at 6%, representing 314 basis points increase from the previous auction sales. Also, CBN sold 182-day bills at 8%, translating to a 450 basis points surge while 364-day bills rose to 12.15%, 621 basis points above 5.94% offered to investors in the previous week
“This rate adjustment aligns with the apex bank’s aim to curtail inflation by maintaining high-interest rates, as reflected in the recent 25 basis point hike in the Monetary Policy Rate (MPR)”, Cowry Asset Management told investors in its market update.
Consequently, the secondary market saw bearish activity as traders followed the direction of the primary market rates. Meanwhile, activities in the OMO space were muted amid zero maturing or refinanced bills. However, inflows from the Federation Account Allocation Committee (FAAC) contributed to a decrease in Nigeria Interbank Offered Rates for all tenor buckets, according to Cowry Asset Management. #CBN Sells T-Bills at 12.15% After Interest Rate Hike Nigerian Treasury Bills Yield Rises to 7%
