Demand for T-bills rises as subscriptions hit N1trn

By Chinwendu Obienyi

The demand for Nigerian Treasury Bills (T-bills) has surged significantly, with subscriptions reaching N1.06 trillion, driven by attractive yields, a report from CSL Stockbrokers revealed on Thursday.

The high demand reflects investors’ expectations of a future drop in rates, signaling their desire to lock in favorable rates now.

Despite a reduction in yields and stop rates, the Central Bank of Nigeria (CBN) reportedly sold N223.46 billion worth of one-year T-bills, although it received subscriptions amounting to N1.06 trillion.

Yields on the one-year T-bill had dropped to 23.36 per cent from 26.42 per cent, marking the lowest level since the rate hike in February. The stop rate also dropped to 18.94 per cent from 20.9 per cent.

The Monetary Policy Committee (MPC) had also raised interest rates earlier to combat inflation, which pushed T-bill yields and stop rates higher. However, a recent drop in inflation to 33.40 per cent in July has reduced the likelihood of further interest rate hikes, leading to lower yields.

Both short-term and long-term bills saw strong demand, with oversubscription of the 91-day and 182-day bills. Yields on these instruments also fell, indicating strong investor appetite amid favorable market conditions.

Although, trading in the T-bills secondary market maintained its bullish trend from prior weeks owing to investors repricing long-dated papers after the apex bank’s recent circular on the operationalization of the Standing Deposit Facility (SDF) and Standing Lending Facility (SLF) funding rates led to an effective reduction in SDF rates.

Thus, the average yield across all instruments contracted by 148bps to 21.8 per cent.

Analysts suggest that the CBN may adopt an expansionary monetary policy to keep rates low, supporting economic growth.

They further added that many participants anticipated a reduction in stop rates, which could lead to a downward repricing of yields in the secondary market.

According to them, this expectation is fueled by the recent decline in inflation and the possibility of the Central Bank of Nigeria maintaining or adopting an expansionary monetary policy.

However, the government is being cautious with its borrowing costs, reflected in the low allotment of T-bills at recent auctions.

Overall, the high subscription reflects optimism in the fixed-income market, despite the yield reductions, with investors aiming to benefit before any further rate changes occur.