Investors demonstrated robust demand for Nigerian treasury bills, offering over N1.59 trillion across three tenors during the Nigerian treasury bill (NTB) auction held on May 22, 2024.
However, the Central Bank of Nigeria (CBN) offered a total of N508.98 billion, with subscription levels significantly surpassing the initial offer, highlighting the continued appetite for fixed-income securities amidst a volatile economic landscape.
Despite the oversubscription, only about N638.98 billion was allotted to the treasury bill investors with the 364-day bill securing the most.
The 364-day treasury bills for 20.69% in stop rates suggesting a true yield of about 26.1%. Treasury bills interest are paid upfront, thus the actual yield is higher that the nominal rates offered.
The heightened interest in treasury bills can be attributed to a spate of increase in the Monetary Policy Rate (MPR), which has made government securities more attractive to yield-seeking investors.
Auction Breakdown
In the 91-day treasury bills segment, where investor interest was subdued, the Central Bank of Nigeria (CBN) offered N331.01 billion.
- Subscriptions, however, totaled only N124.92 billion, which was well below the amount offered.
- Eventually, only N60.69 billion was allotted, with the range of bids for this tenor spanning from 15.0000% to 20.9410%, and the stop rate settling at 16.5000%.
- This lower subscription and allotment, in comparison to the offer, suggest a preference among investors for longer-term securities.
For the 182-day treasury bills, the CBN’s offer stood at N9.3 billion. Subscriptions came in significantly higher at N33.21 billion, while the allotment was N28.46 billion.
- The bid range for these bills varied between 16.8000% and 22.0000%, concluding with a stop rate of 17.4490%.
The 364-day treasury bills attracted the most substantial interest. Against an offer of N168.67 billion, subscriptions soared to N1.43 trillion, resulting in an allotment of N549.83 billion.
- Bids for this category ranged from 18.5000% to 26.6780%, with a final stop rate of 20.6900%.
What you should know
According to Nairametrics research, as of the last auction, the central bank had offered about N2.68 trillion in treasury bills while investors have staked N24.6 trillion in total, while actual sales is around N7.4 trillion.
The oversubscription witnessed in the treasury bills segment reflects a broader liquidity challenge for the apex bank that has been struggling to contain money supply.
The central bank has tightened liquidity by increasing the cash reserve ratio of commercial banks yet treasury bill offerings continue to attract massive over subscriptions. The cash reserver ratio and liquidity ratio of commercial banks is currently 45% and 30% respectively.
The central bank increased its benchmark monetary policy rate to 26.25% at the last MPC meeting.