Subscription to NTBs Hit N13.15tn as Interest on 91-day Rise to 17.24%

Kayode Tokede 

Subscription to Nigerian Treasury Bills (NTBs) increased to N13.15 trillion in the first 40 days of 2024, following a strong demand for risk-free instrument and hedge against inflation by investors.

So far, the Central Bank of Nigeria (CBN) has conducted three NTBs auctions, offering N1.29 trillion to investors but eventually recorded N1.38 trillion total sales.

On January 10, 2024, the CBN offered N52.29 billion for 364 days NTBs but got N10.01 trillion total subscription and only retained the amount offered. On January 24, 2024, the CBN offered N231.8 billion NTBs and retained the same amount offered. The last offer, which was on February 7, 2024, was N1 trillion.

The CBN has continued to woo investors with attractive interest rate on 91-day NTBs, reaching a peak of 17.24 per cent at the last auction on February 07, 2024, while interest rate on the first 91-day NTBs auction conducted January 24, 2024 was at 2.44 per cent.

THISDAY investigation revealed that the 364-day NTBs interest rate has increased from 8.399 per cent to 19 per cent when the third NTB was conducted February 07, 2024.

In an auction held in January, the CBN sold NTB totalling N381.2billion across various maturities– 91, 182, and 364 days. The interest rates for these maturities were recorded at five per cent for the 91-day bills, 7.15 per cent for the 182-day bills, and 11.54 per cent for the 364-day bills, respectively.

During the first NTB auction for February, the CBN offered N1 trillion across the 91-day, 182-day, and 365-day maturities, with a successful bid rate of 7.0000 per cent-17.2400 per cent, 4.0000 per cent -18.0000 per cent and 13.0000 per cent -29.9400 per cent, respectively. 

The breakdown of the N1trillion NTB auction was N200.00 billion of the 91-day, N200.00 billion of the 182-day, and N600.00 billion of the 364-day bills.

The 91-day NTB of N200 billion was on offer and the subscription was N39.90 trillion while the 81-day bill has an offer of N200billion and subscriptions valued at N51.35 billion were made and the 364-day NTB of N600billion offer saw a  N1.87 trillion total subscription.

Treasury bills yield has been rising since the central bank started its rate hikes in response to the high inflation rate. With the inflation rate at 28.92per cent as of December 2023, the central bank has increased its benchmark monetary policy rate to 18.75per cent.

Investors demand, however, rose to match, almost doubling the offer size, reaching N1.98trillion.  

Despite the demand level, stop rates rose significantly across the trio of maturities, reaching 17.24 per cent, 18 per cent, and 19.00per cent (vs five per cent, 7.15 per cent, and 11.54 per cent), respectively.

“Are we back to higher rates? It seems very likely that we will see, on average, much higher T-bill rates than last year, which is good news for savers. The bigger question is whether we will see 1-year T-bill rates above the 20 per cent-mark, as we saw last week. It is possible, especially if the new approach is successful in attracting foreign investors, ”said analysts at Coronation Research.  

Experts expressed that the NTBs auction represents a move by the CBN to manage the country’s debt obligations and address liquidity in the financial system, stressing that inflation rate responsible for push in NTBs interest rate witnessed so far in February.

Commenting on the development, the CEO, Wyoming Capital and Partners, Mr. Tajudeen Olayinka said, “the essence is to encourage foreign inflows that could help improve dollar liquidity in the foreign exchange market and cause a moderation in naira exchange rate until the market attains equilibrium level.

“I have no doubt that it was the most appropriate decision on the part of CBN and government at this time. There’s need to improve dollar liquidity that will eventually force domestic interest rate to moderate subsequently.”

The Vice President, Highcap Securities Limited, Mr. David Adnori, stated that NTBs are considered to be one of the safest forms of investment since they are backed by the government.

He said, “As the rate on Treasury Bills increases, it becomes more attractive to investors who are seeking a risk-free investment as they may choose to invest in Treasury Bills rather than other riskier investment options. The CEN had lure investors with attractive interest rate otherwise most of these auctions will under subscribed. The performance of the one-year bills showed that investors had confidence in the current government and the reforms it had embarked on.

“Firstly, the investors are seeking higher rates for funding due to CBN signalling further tightening due to accelerating inflation and other factors. Secondly, interest seems skewed towards the longer end of the curve, which is an indication of confidence in the government and its reforms. Also, the massive over–subscription shows the significant system liquidity.”

On their part, analysts at Cordros Research, noted that bullish sentiments have dominated the fixed income market amid the structurally buoyant system liquidity.