Nigeria: CBN Slashes Treasury Bill Rates as Inflation Declines

The Central Bank of Nigeria (CBN) has significantly lowered discount rates on Nigerian Treasury bills as inflationary pressures ease, prompting heightened investor interest in naira assets.

At its midweek primary market auction, the CBN offered ₦700 billion worth of Treasury bills across 91-day, 182-day, and 364-day tenors. Despite a prevailing liquidity deficit exceeding ₦1 trillion in the money market, investors flooded the auction with strong bids.

Market analysts observed that total subscriptions surpassed ₦2.4 trillion, more than three times the amount on offer. This surge in demand was fueled by the fact that, for the first time in a long while, interest rates on Treasury bills outpaced inflation, making returns more attractive.

The appetite for long-term securities remained strong, with the 364-day Treasury bill receiving 95% of total subscriptions. Consequently, the CBN allotted ₦774.13 billion in Treasury bills, exceeding the initial offer by 11%.

Auction results showed that the stop rate for the 91-day tenor dropped by 100 basis points to 17%. Similarly, the 182-day bill declined by 50 basis points to 18%, while the 364-day paper saw a steeper reduction of 189 basis points to settle at 18.43%.

The downward adjustment in Treasury bill rates follows inflation’s decline to 24.48%, bringing it below the benchmark interest rate of 27.50%. This development has led to a positive real return environment, further driving demand for government securities.

At the most recent auction held on February 5, 2025, the CBN offered ₦570 billion in Treasury bills across three maturities, slightly exceeding the ₦530 billion issued in the January 22, 2025, auction. Investor appetite remained robust, with total bids soaring to ₦4.06 trillion, a sharp increase from ₦2.54 trillion in the previous auction.

According to Meristem Securities Limited, this surge in demand was underpinned by improved system liquidity, which stood at ₦201.55 billion as of February 4, 2025, and optimistic investor sentiment.

At the close of the auction, the CBN allotted ₦670 billion in Treasury bills, lower than the ₦756.02 billion allotted in the preceding auction. The bid-to-cover ratio improved to 4.80x, up from 3.35x in the prior auction, reflecting stronger investor participation.

While stop rates for the 91-day and 182-day bills remained unchanged at 18.00% and 18.50%, respectively, the yield on the 364-day bill declined by 148 basis points to 20.32%, down from 21.80% in the last auction.

The decline in the 364-day rate underscores growing investor preference for longer-term securities amid expectations of continued rate adjustments in upcoming auctions. As market dynamics evolve, analysts anticipate further shifts in Treasury bill rates driven by inflation trends, monetary policy decisions, and overall economic conditions.