CBN Trims Interest Rate on Treasury Bill as Demand Spikes
The Central Bank of Nigeria (CBN) trimmed interest rate on long tenor treasury bills sold at the primary market auction following large subscriptions from investors ahead of inflation data for March, 2024.
Inflation is expected to cross 32% in March, according to Broadstreet analysts’ consensus despite apex bank inflation fighting measures. The CBN policy committee raised benchmark interest rate to 24.75% in March to anchor Nigeria’s ugly inflation conditions.
In the new week, the National Bureau of Statistics, NBS, is expected to announce inflation data from March, the lagging indicator is expected to maintain an uptrend throughout the second quarter of the year.
In the secondary market, trading activities on Nigerian treasury bills closed on bullish. The market recorded increased demand for short term fixed interest securities despite large allotment made by the Central Bank.
Traders and market analysts reported that there were pockets of demand particularly at the long end of the curve. There was thin transaction at the belly of the curve. As a result, the average yield across all instruments contracted by 9 basis points to 18.7%, according to a market update from Cordros Capital Limited. Naira Suffers Big, CBN Goes Ballistic Against FX Whales
The investment firm stated in its note that across the segments, the average yield declined by 5 basis points to 18.9% in the NTB secondary market. Elsewhere, the yield on OMO bills dipped by 20 basis points to 18.2% in the OMO segment.
On Friday, the apex bank offered instruments worth N149.63 billion to investors, authorized dealers and other participants at its primary market auction.
The offer size was split into NN2.78 billion for the 91-day treasury bills, N3.02 billion for the 182-day, and N143.84 billion for the 365-day bills.
According to auction results, total subscription came at NGN1.82 trillion, translating to a bid-to-offer ratio of 12.2x. Investment firms said demand skewed towards the longer-dated bill which attracted N1.77 trillion.
The CBN allotted bills worth N951.83 billion across the short, belly and long tenors. Details from auction results showed that CBN sold N27.11 billion of the 91-day at 16.24% – the same rate offered at the previous auction.
The apex bank also allotted 182-day treasury bills worth N22.67 billion at 17%, the same rate offered at the previous auction. The authority sold 364-day bills worth N902.04 billion at 20.70%, 42 basis points below its previous rate of 21.12%.
“Given our expectations of lower liquidity in the system next week, we anticipate participants’ demand for bills to moderate, resulting in an expansion of yields in the secondary market.
“Nonetheless, we do not rule out a possible influx of unmet demand from today’s primary auction to filter into the secondary market in the coming week”, Cordros Capital Limited said in its market update.
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