Nigerian T-Bills Sales Surge on Dwindling Naira Value
Godwin Emefiele, CBN Gov

Nigerian T-Bills Sales Surge on Dwindling Naira Value

As the naira continues to lose value, demand for Nigerian Treasury bills has increased strongly lately as local investors look for a window to lock in their free cash to reduce exposure to high double-digit inflation pressures.

Naira lost about 11% at the Investors’ and Exporters’ foreign exchange window in 2022, while rising headline inflation forced the monetary authority to hike rates to three consecutive times.

FX rate is predicted to hit N500 per United States in 2023 at the investors’ and exporters’ foreign exchange (FX) window, in what appears like a consensus among leading investment banking firms in Nigeria.

Analysts told MarketForces Africa that higher demand for Treasury bills has affected pricing.  Spot rates have dropped across tenored bills, according to the Central Bank of Nigeria (CBN) primary market auction result.

Though Nigeria’s inflation rate printed at 21.47% in November 2022 and the benchmark interest rate has increased 500 basis points to 16.50%, the CBN sold 364-day Nigerian Treasury bills to investors at 7.30% on Wednesday.

Amidst what some analysts call financial repression, Nigerian Treasury bills investors were seen ramping up more bills in the secondary market amidst a healthy liquidity position.

Last week, the Central Bank of Nigeria (CBN) conducted auction sales to rollover matured bills worth N56.93 billion last week, split as N1.55 billion of the 91-day, N1.49 billion of the 182-day, and N53.90 billion of the 364-day – to market participants.

Demand was higher, especially for the 364-day Treasury bills, as the total subscription settled at N389.04 billion, Cordros Capital told investors via email. Eventually, the CBN allotted exactly what was offered at respective stop rates of 2.00% (previously 2.75%), 4.33% (previously 7.15%), and 7.30% (previously 8.49%).

Meanwhile, the Nigerian Treasury bills secondary market sustained its bullish trade pattern as the average yield across all instruments contracted by 7 basis points to 3.3%.

“We attribute this week’s performance to higher demand following the healthy system liquidity and market participants moving to the secondary market to compensate for lost bids at Wednesday’s NTB auction”, Cordros Capital said.

Across the market segments, investment banking analysts stated that the average yield contracted by 9 basis points to 3.3% at the Nigerian Treasury bills secondary market, but was flat at 3.4% at the OMO bills segment.

.Projecting into the new week, analysts at Cordros Capital said they believe yields in the Nigerian Treasury bills secondary market will move northward, given the anticipated lower liquidity in the system.

In the money market, the overnight lending rate dipped by 450 basis points to 10.0% as inflows from cash reserve ratio refunds worth N280.00 billion hit the financial system.

The market also received N10 billion inflow from matured OMO bills as the CBN failed to refinance the instruments. Thus, the Nigerian interbank offered rate closed southward for most tenor buckets tracked, according to Cowry Asset Management Limited.

Accordingly, the average system liquidity remained at a net long position of N430.30 billion, relative to the net long position of N351.00 billion in the prior week, Cordros Capital told investors.

Analysts expect the overnight lending rate to trend slightly upward, saying that the inflow from FGN bond coupon payments worth N65.36 billion may not be enough to saturate the system. #Nigerian T-Bills Sales Surge on Dwindling Naira Value

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