Nigeria: CBN Reduces Treasury Bill Interest Rates Amid High Demand

CBN Reduces Interest Rates on 1-Year Treasury Bills by 42.4 Basis Points to 20.7%
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The Central Bank of Nigeria (CBN) has adjusted interest rates on long-term treasury bills at the primary market auction due to overwhelming subscriptions from investors, ahead of the release of March 2024 inflation data.

Broadstreet analysts anticipate that despite the CBN’s efforts to curb inflation, March’s inflation rate is expected to exceed 32%. In response, the CBN policy committee raised the benchmark interest rate to 24.75% in March to address Nigeria’s challenging inflationary environment.

The National Bureau of Statistics (NBS) is set to publish March inflation figures in the upcoming week, with expectations of a continued upward trend throughout the second quarter of the year.

In the secondary market, trading activity on Nigerian treasury bills concluded on a bullish note, marked by increased demand for short-term fixed interest securities despite substantial allotments by the Central Bank.

Traders and market analysts noted significant demand, particularly at the long end of the yield curve, while activity at the intermediate maturities was relatively subdued. Consequently, the average yield across all instruments contracted by 9 basis points to 18.7%, as reported by Cordros Capital Limited.

According to Cordros Capital Limited, the average yield declined by 5 basis points to 18.9% in the NTB secondary market, while the yield on OMO bills decreased by 20 basis points to 18.2% in the OMO segment.

During the primary market auction on Friday, the CBN offered instruments worth N149.63 billion to investors, authorized dealers, and other participants. The auction attracted total subscriptions amounting to N1.82 trillion, resulting in a bid-to-offer ratio of 12.2 times. Notably, there was a preference for longer-dated bills, with demand totaling N1.77 trillion.

The CBN allotted bills worth N951.83 billion across various tenors, with details from the auction outcomes indicating sales of N27.11 billion of the 91-day bills at a rate of 16.24%, consistent with the previous auction. Similarly, N22.67 billion in 182-day Treasury bills were allocated at a rate of 17%, unchanged from the prior auction. The authority also sold 364-day bills worth N902.04 billion at a rate of 20.70%, representing a 42 basis points reduction from the previous rate of 21.12%.

Cordros Capital Limited anticipates a moderation in demand for bills in the secondary market due to lower liquidity expectations. However, the possibility of unmet demand from the primary auction filtering into the secondary market in the coming week cannot be ruled out, according to their market update.

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