CBN cuts 364-day T-bill rate to 17.15% despite N3.63tn demand

The Central Bank of Nigeria lowered the stop rate on the 364-day treasury bill by 44 basis points to 17.15 per cent, even as investors bid N3.63tn for the instrument at Wednesday's primary market auction.

Total bids across the three maturities stood at N3.79tn, with the one-year paper accounting for 95.9 per cent of the subscriptions. The CBN offered N700bn in total, made up of N100bn each for the 91-day and 182-day bills and N500bn for the 364-day bill. Total subscriptions were more than five times the amount offered.

Investors pile into one-year paper

The 364-day bill was the clear outlier, receiving bids equivalent to 7.26 times the amount offered. The CBN allotted N638.19bn, exceeding the N500bn offer by N138.19bn. Still, only about 17.6 per cent of total bids submitted for the instrument were accepted.

Investors quoted yields between 16.00 per cent and 19.05 per cent, but the CBN settled at 17.15 per cent. The level of demand allowed the regulator to reject more expensive bids. The result is significant because the CBN achieved a lower borrowing rate even after receiving exceptionally strong demand for the security.

Shorter tenors stay subdued

Demand at the shorter end of the curve was weaker. The 91-day bill attracted N103.32bn in subscriptions against N100bn offered. The CBN allotted N89.10bn at an unchanged stop rate of 16.30 per cent.

The 182-day bill performed even more weakly, attracting only N52.93bn against N100bn on offer. The CBN allotted N35.59bn, while the stop rate remained at 16.50 per cent.

Secondary-market yields for the three instruments stood above their respective auction stop rates, at 17.45 per cent for the 91-day bill, 17.05 per cent for the 182-day bill and 17.24 per cent for the 364-day bill.

What analysts make of the auction

Financial sector analyst Jimbe Asalor said the concentration of bids in the one-year instrument suggests investors may be placing greater value on locking in relatively attractive yields over a longer period rather than repeatedly rolling over shorter-term securities.

Asalor noted that the latest auction also demonstrates “the CBN’s ability to borrow more cheaply when demand is concentrated around a particular maturity.” He added that by accepting N638.19bn on the 364-day bill at 17.15 per cent, the CBN borrowed above its initial offer while simultaneously cutting the rate by 44 basis points.

“The nine-basis-point difference between the auction stop rate and the 17.24 per cent secondary-market yield also indicates that the one-year segment is now trading relatively close to market expectations.”

Lagos-based consultant economist Chukwunonso Iheoma said if the preference for longer-dated treasury bills persists, the development could provide further support for a gradual decline in government borrowing costs while strengthening expectations of eventual interest-rate cuts.

For Nigerian businesses and consumers, lower government borrowing costs could eventually feed into cheaper credit and a less hawkish monetary policy stance. That outcome, however, depends on whether investors continue to crowd into longer-dated instruments in the coming auctions.