Total NTBs Subscription Rise to Staggering N23.75tn in Four Months

Kayode Tokede

Amid high demand for government securities, investors’ subscription to Nigerian Treasury Bills (NTBs) increased to N23.75 trillion in the first four months of 2024, a 292 per cent Year-on-Year (YoY) growth from N6.06 trillion in the first four months of 2023.

NTBs are short-term government debt instruments issued by the Central Bank of Nigeria (CBN) and it is one of the several ways the government used in raising funds to bridge budget deficit.

The 2024 Budget of ‘Renewed Hope’ as proposed by President Bola Tinubu outlines a total expenditure of N27.5 trillion, with a projected revenue of N18.32 trillion and a deficit of N9.18 trillion.

Local and foreign investors seem to respond positively to the double-digit interest rates on NTBs, as seen in the robust subscription rates, suggesting confidence in the CBN’s ability to manage the country’s monetary challenges amid scarcity of foreign exchange and double-dight inflation rate.

According to CBN’s primary market auctions in first four months of 2024, NTBs total sales amounted to about N6.95 trillion, an increase of 271.66 per cent from N1.87 trillion in first four months of 2024, to reflect a cautious approach to liquidity management in the banking system.

With about nine NTBs auctions in first four months of 2024, the CBN offered amount stood at N2.51 Trillion across the 91, 182, and 364-day tenors when compared to N1.57 trillion in corresponding period of 2023. 

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 33.20 per cent as of March 2024, the central bank has increased its benchmark monetary policy rate to 24.75 per cent.

THISDAY investigation revealed that NTBs auction in the first four months NTBs revealed a gradual increase in the stop rates offered by the CBN.

The stop rates on NTB have surged significantly from 2.44 per cent on a 91-day tenor bill, 4.22 per cent on a 182-day tenor bill, and 8.3995 on a 364-day tenor bill from the first auction in January 2024 to 16.24 per cent, 17 per cent, and 20.70 per cent respectively from the last auction in April 2024.

The heightened interest in the NTBs signifies a keen investor appetite for higher interest rates, providing a solid anchor for the fiscal stability of Nigeria.

Notably, the stop rate for the 364-day bill hit a high of 20.70 per cent on the same date, reflecting tightening monetary conditions.

Specifically, NTBs in first four months of 2024 has attracted a huge subscription of approximately N22.6 trillion, with the CBN capitalising on this demand to offer and total sales of a whopping N142.16 billion N6.18 trillion, respectively.

The CBN, under Yemi Cardoso, has increased the monetary policy rate (MPR) by 600 basis points so far, from 18.75per cent to 24.75per cent.

The apex bank’s decision to tighten monetary policy by increasing interest rates and auctioning larger volumes of NTBs is a strategic move to address several macroeconomic concerns.

Higher interest rates are typically employed to control inflation; they make borrowing more expensive, thereby tempering spending and investment, which, in theory, should reduce the upward pressure on prices.

Additionally, these higher rates tend to attract foreign investors seeking better yields, leading to an inflow of foreign currency, which can help stabilise and potentially strengthen the Nigerian Naira.

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 recorded in the first four months of 2024.

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 NTB increases, it becomes more attractive to investors who are seeking a risk-free investment as they may choose to invest in NTBs rather than other riskier investment options.

“The CBN had lure investors with attractive interest rate otherwise most of these auctions will be 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.”

He added that investors are seeking higher rates for funding due to CBN signalling further tightening due to accelerating inflation and other factors, stressing that 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,” he added.

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