Interest Rate on T-Bills Hit 32-month High as CBN Mops N5.33trn in Primary Market

Kayode Tokede

In order to attract more investors, especially at a period of inflationary pressures in the country, the Central Bank of Nigeria (CBN) increased interest rate on the Treasury Bills (T-Bills) to 6.49 per cent in October 2022, reaching its highest figures in 32 months.

When MPR was at 14 per cent in 2019, the interest rate on T-Bill was hovering above 10 per cent, according to the CBN money market indicators.

The CBN in 2022 increased MPR from 11.5 per cent to 13 per cent in May 2022 and eventually moved it to 15.5 per cent in a bid to tackle raising inflation that reached 21.09 per cent in October 2022.

The latest money market indicators by CBN revealed that interest on T-Bills opened 2022 at 2.49 per cent when the MPR was at 11.5 per cent and dropped to 1.74 per cent in April 2022.

It went up to 2.47 per cent in May 2022, a month the Monetary Policy Committee (MPC) increased MPR to 13 per cent.

According to the money market indicators, the interest rate on T-Bill has gained 399 percentage points in its Year-on-Year (YoY) performance from 2.5 per cent reported in October 2021.

THISDAY findings revealed that the CBN in 10 months of 2022 moped N5.33 trillion via primary market sales, representing a decline of 9.8 per cent from N5.91trillion in 10-month of 2021.

With the increase in T-bills interest rate, analysts have expressed that investors have dumped the stock market and invested in fixed-income securities over the attractive interest rates.

Notably, Investors in the stock market of the Nigerian Exchange Limited (NGX) lost an average N2.57 trillion in October 2022 as escalated global energy and commodity crises triggered massive portfolio realignments.

The market capitalisation opened trading at N26.451 trillion, dropping N2.57 trillion or 9.7 per cent to close at N23.878 trillion, while the NGX All-Share Index depreciated by 10.6 per cent to close at 43,839.08 basis points from 49,024.16 basis points it closed for trading in September 2022.

So far in November, the apex bank auctioned some T-bills to traders at the primary market and from analysis of the results of the exercise, the 364-day instrument was sold at successful bid rates of 11.8- 13.99 per cent.

The central bank auctioned N139.05 billion worth of the 12-month maturity but received subscriptions valued at N499.42 billion and allotted N300.16 billion to subscribers.

Commenting, the Managing Director, CEO, Wyoming Capital & Partners, Mr. Tajudeen Olayinka explained that the hike in T-Bills interest rate is a direct fallout of recent CBN’s monetary policy actions and demand for positive real return on investment by investors that still remains negative.

He added that, “This is already impacting the market negatively, as it is the cause of prolonged repricing of securities across markets and instruments, including loans and advances by banks, and the source of the rising cost of capital in the economy.”

Analyst at PAC Holdings, Mr. Wole Adeyeye attributed 6.49 per cent interest on T-bill to the rising inflation rate in the country, stressing that it has led to the increase in policy rate and contributed to

He noted that the interest rate hike is expected to attract domestic and foreign portfolio investors into the fixed-income market.

“On the other hand, this may result in migration of investors from the stock market to fixed-income market,” he added.

On his part, the Head Financial Institutions’ Ratings Agusto & Co, Mr. Ayokunle Olubunmi said the back-to-back hike of the MPR in May, July, and Sept. 2022 to 15.5 per cent on the backdrop of a hike in inflation rate.

He said, “The belief is that if the interest rate is high, most people will invest in fixed-income securities and it will be reduced money in circulation and curb inflation.”

He noted the steady increase in T-bill interest rate has triggered massive portfolio realignments to fixed-income securities from the stock market.

“Why do investors want to risk their money in stock market if the yield on T-Bill is attractive? During period when rates are low, that is when stocks in the capital market appreciate.

“If you check, in 2020 when the stock market was over 49.05 per cent on average returns, that was when fixed-income securities were low. As rates are going up, investors will be moving to the fixed-income securities,” he explained.

According to analysts at Cordros Research, sentiments in the T-Bills secondary market turned bearish following the low liquidity in the system last week as participants exited positions across the curve to meet their financial obligations.

The firm in a report noted that, “As a result, the average yield across all instruments expanded by 14basis points to 10.5 per cent. Across the segments, the average yield increased by 18basis points to 10.6 per cent at the NTB secondary market, but contracted by two basis points to 10.2 per cent at the OMO segment.”

Cordros Research added that, “Following the relatively slim system liquidity expected next week, we envisage low demand for T-bills and a slight expansion in yields from current levels.

“Also, we expect market focus to be shifted to the NTB PMA holding on Wednesday (24 November), with the CBN expected to roll over N213.43 billion worth of instruments.”