Improved liquidity on the Nigerian one-year Treasury bills (T-Bills) eased pressure on government short-term borrowing costs as yields declined.
Subscription on the one-year T-bills at the Wednesday auction increased by 63 percent to N1.36 trillion from N830 billion at the previous auction.
Market analysts point to recent inflows from maturing securities and FAAC allocations as drivers of liquidity. A total of N1.678 trillion from the Federation Account revenue for February 2025 was distributed among all arms of government.
“FAAC allocation came in on Monday, creating liquidity in the market. Also, the CBN has a higher maturity of N1.18 trillion to be paid on Thursday compared to the amount offered,” Gbolahan Ologunro, a portfolio manager at FBNQuest, said.
Read also: Yields on Nigerian T-Bills cool as liquidity improves
The increased appetite for the one-year bill led to a decline in its yields to 24.42 percent from 24.90 percent. A reversal from an increase at the last two auctions, which some analysts ascribe to the Central Bank’s effort to keep FPIs have been exiting the Treasury bill market.
However, Ologunro explained that, unlike the past two auctions when there was FX volatility, the naira is more stable at this auction, giving the CBN an edge.
“The demand pressure on the FX market witnessed in the past week has also cooled down a bit, so there’s no incentive for the CBN to increase yield to attract foreign investors,” Ologunro said.
Going forward, the biggest task before the CBN now is maintaining a stable exchange rate and lowering the cost of borrowing (interest rate).
Analysts at Capitalfield said that chasing these two core objectives will be tough for them, knowing that foreign investors are interest rate sensitive.
“ Our view is that, they may want to keep the yield stable at this current level (though a bit high but not as high as we saw last year) since investors are still happy with it to keep the exchange rate stable for a while until they have been able to shore up their FX reserves through others means like Eurobond issuances, borrowing from other sources,”
“ After shoring up the reserves, they can drop the yield further, and even when the foreign investors pull out their USD, the impact on the exchange rate won’t be so bad,” they said.
Read also: Fixed income market: T-bills, others spur 17.96% rise in turnover to N18.47trn
Capitalfield mentioned that the other option might be to allow the naira to depreciate to 1,600 levels and drop yield further (lowering interest rate).
“ Foreign investors may not want to exit to avoid huge losses from the FX side as further pressure on the dollar from their exit might take the exchange rate to 1,700-1,800 levels,” they said.
The Naira depreciated by 0.34 percent to close at 1,537.62/USD, compared to NGN1,532.39/USD yesterday on the official market. At the parallel market, it appreciated slightly to 1560.00/USD compared to NGN1,565/USD in the previous session.
The CBN only sold N745.80 billion worth of one-year Treasury bills and a total of N808.2 billion across all tenors on Wednesday. This brings total Treasury bill sales for 2024 to N5.5 trillion.
The 182-day and 91-day Treasury bills saw limited interest. Of the N80 billion offered in 91-day bills, only N38.65 billion was sold, while the 182-day bill saw N24.27 billion in sales. Yields on the 182-day and 91-day bills stood at 20.39 percent and 18.86 percent, respectively.
