Inflation fears drive demand as CBN raises T-Bill yields

Investors seeking safer and more rewarding places to keep their money have poured funds into Nigeria’s Treasury bills market, prompting the Central Bank of Nigeria (CBN) to increase interest rates on its latest auction.

The move comes as inflation, which stood at 15.93 per cent in May, continues to erode the value of savings and investments, forcing investors to demand higher returns.

At its Treasury bills auction on Wednesday, June 17, the CBN sold N1.49 trillion worth of bills, well above the N1 trillion initially offered, after receiving bids totaling N1.86 trillion. The strong demand showed that investors are increasingly turning to government securities to protect their money against rising prices.

The biggest attraction was the one-year Treasury bill. Investors submitted bids worth N1.66 trillion for the 364-day instrument, more than double the N800 billion offered by the CBN. In response, the apex bank allotted N1.29 trillion worth of the bills.

To attract investors, the CBN raised the return on the one-year bill to 17.34 per cent from 16.35 per cent at the previous auction held on June 3. This was the largest increase recorded across all maturities and reflects growing expectations that inflation and high interest rates may remain for some time.

The 91-day Treasury bill also witnessed strong demand. Investors sought N129.69 billion worth of the short-term instrument against the N100 billion offered. The CBN allotted N129.32 billion and raised the return slightly to 16.28 per cent from 16.05 per cent.

Demand was weaker for the 182-day Treasury bill. Investors subscribed to N70.22 billion, below the N100 billion on offer. The CBN allotted N70.17 billion and increased the yield to 16.50 per cent from 16.19 per cent.

Analysts said the auction results suggest that investors are focusing either on short-term instruments that provide quick access to cash or longer-term bills that offer better returns.

The one-year Treasury bill alone accounted for almost 90 per cent of total subscriptions, highlighting investors’ willingness to lock in higher returns amid uncertainty about the future direction of interest rates.

The rising yields also reflect expectations that the CBN may keep its tight monetary policy in place as it battles inflation. Higher returns on government securities have become a major feature of Nigeria’s fixed-income market as policymakers seek to control rising prices and manage liquidity in the economy.

Market watchers expect Treasury bill rates to remain elevated in the coming months as inflation concerns, monetary policy decisions and market liquidity continue to influence investor behaviour.