Investors strong demand of N4.07 trillion on the one-year Nigerian treasury bills drove yields down to 18.91 percent at the auction on Wednesday.
“Demand was heavily skewed toward the 364-day tenor. This reflects strong investor appetite to lock in longer-dated risk-free instruments. As a result of the massive demand, the stop rate on the 1-year bill declined significantly, indicating aggressive bidding and potential expectations of gradual yield moderation ahead,” Ayodeji Ebo, managing director of Optimus by Afrinvest.
Yields on the one-year bill were down to 18.91 percent from 20.46 percent and 22.65 percent at the start of the year.
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The 364-day bill recorded exceptionally strong demand, attracting N4.07 trillion in subscriptions against an offer of N800 billion, with N1.71 trillion allotted. Overall, investor appetite was overwhelmingly concentrated in the long tenor.
In contrast, the 91-day and 182-day bills saw relatively moderate demand, with subscriptions of N112.01 billion and N93.75 billion, respectively, both below their offer sizes.
The 91-day bill saw a slight dip in rates to 16.46 percent, while the 182-day bill remained flat at 18.17 percent, suggesting relative stability at the short-to-mid segment of the curve.
The Nigerian treasury bills primary auction has seen very high demand since late last year, although the total demand of N4.2 trillion at this auction is slightly lower than that of the previous auction, at N4.59 trillion. Analysts say that this trend reflects investors locking in on high yields against the projection of moderation in yields as currently seen.
Read also: T-bill subscriptions skyrocket to N4.59trn as investors chase high yields
What does this mean for the economy?
Ebo said that the sharp oversubscription at the long end signals a concentration of liquidity and a preference for duration among institutional players.
“If sustained, this could gradually compress yields across Commercial Papers, fixed deposits, and money market funds,” Ebo said.
Commercial paper yields are starting to compress, as seen at listing on NGX yesterday.
Dangote Cement recently became the first company to list Commercial Paper on the Nigerian Exchange, issuing Series 1 and 2 under its N500 billion programme. The N19.95 billion Series 1 issuance matures in 181 days at a 17.50 percent yield, while the N99.92 billion Series 2 matures in 265 days at 19 percent. Both were issued at a discount to their N1,000 par value and notably offer lower yields than comparable tenors at recent primary auctions.
Read also: Liquidity glut ignites T-Bill frenzy as yield retreat looms
What should investors do?
Ebo said that investors may consider a laddering approach, but those with longer-term liquidity may want to lock in the 364-day tenor early before further rate compression sets in.
