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The Federal Government is set to inject another N500 billion worth of Treasury bills into the domestic market on Wednesday, a fresh supply that could temporarily push yields higher in the secondary market as investors reposition their portfolios ahead of the auction.
This upcoming issuance comes against the backdrop of strong demand for government securities and ample liquidity in the banking system. These conditions have supported a broadly bullish tone in the Treasury bills secondary market, with investors maintaining healthy appetite for short-term government instruments.
However, the prospect of fresh supply from the Federal Government could prompt some investors to trim existing Treasury bill positions to raise cash for the primary market auction.
Such repositioning could increase selling pressure in the secondary market ahead of the auction, potentially pushing NTB yields higher in the near term.
The development follows the strong investor participation recorded at the most recent NTB primary market auction. At Wednesday’s auction, the Debt Management Office offered N700 billion across the 91-, 182- and 364-day tenors but received total bids of N3.35 trillion, representing demand significantly above the amount on offer. The Debt Management Office (DMO) ultimately allotted N865.71 billion, underscoring the depth of investor appetite for government securities. Notably, the stop rate on the 364-day bill declined by 31bps to 16.84 per cent, while rates on the 91- and 182-day instruments remained unchanged at 16.30 per cent and 16.50 per cent, respectively.
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The sizeable unmet demand from the auction subsequently filtered into the secondary market, contributing to a 5bps contraction in average NTB yields to 18.9 per cent.
The Federal Government’s upcoming N500 billion offer, therefore, comes at a time when demand remains resilient but investors are also presented with alternative opportunities. In particular, the relatively higher yields on OMO bills could encourage some investors to rotate funds away from NTBs, adding another layer of upward pressure to secondary-market yields.
At the previous OMO auction, the Central Bank of Nigeria (CBN) offered N600 billion in bills but attracted a substantial N5.50 trillion in bids, eventually allotting N2.88 trillion. Stop rates settled at 19.59 per cent, 18.99 per cent and 18.99 per cent across the 91-, 147- and 154-day tenors, respectively. Overall, while the Federal Government’s fresh N500 billion NTB supply may create temporary yield pressure as investors reposition, the broader market outlook remains constructive.
Strong domestic demand and ample system liquidity should continue to provide support for Treasury bills, limiting the extent and duration of any upward movement in secondary-market yields.
The auction will therefore be closely watched for signs of sustained investor appetite and the extent to which the government’s fresh supply influences pricing across the NTB curve.
