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.
The consensus of Broadstreet analysts is that, in spite of the apex bank’s efforts to combat inflation, inflation will surpass 32% in March. The CBN policy committee raised benchmark interest rate to 24.75% in March to anchor Nigeria’s ugly inflation conditions.
The National Bureau of Statistics (NBS) is anticipated to release March inflation figures this coming week. The lagging indicator is anticipated to continue rising during the year’s second quarter.
In the secondary market, trading activities on Nigerian treasury bills closed on bullish note. The market recorded increased demand for short term fixed interest securities despite large allotment made by the Central Bank.
There were pockets of demand, notably at the long end of the curve, according to traders and market analysts. 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.
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 amount of the offer was divided into three parts: N3.02 billion for the 182-day, N143.84 billion for the 365-day, and N2.78 billion for the 91-day Treasury bills.
As per the auction outcomes, the total subscription amount was N1.82 trillion, resulting in a bid-to-offer ratio of 12.2 times. According to investment firms, there was a preference for the longer-dated bill, which garnered N1.77 trillion in demand.
Bills totaling N951.83 billion were distributed across the belly, long, and short tenors by the CBN. According to specifics from the auction outcomes, CBN sold N27.11 billion of the 91-day at a rate of 16.24%, which was also the rate offered at the prior auction.
In addition, the apex bank allocated N22.67 billion in 182-day Treasury bills at a rate of 17%, which was the same as in 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.
