Nigeria: Central Bank of Nigeria Lowers Treasury Bills Rates to Boost Liquidity

The Central Bank of Nigeria (CBN) has reduced the rates on Treasury bills instruments as liquidity remains healthy within the financial system. Despite high inflation and interest rates, the decline in spot rates during the auction reflects increased subscription levels in the fixed income market.

Investors holding Treasury bills, including banks, pension fund administrators, and other market participants, have experienced widening negative real returns on their portfolios. While rates are low, the appeal lies in the fact that it reduces exposure to inflation and provides a risk-free investment option. Senior financial experts note that risk-free naira assets do not require a premium due to their inherent security.

Last week, the overnight rate increased to 1.6%, and the average system liquidity settled at a net long position of N708.40 billion. Market analysts anticipate that the overnight lending rate will rise further in the coming week due to outflows from the FGN bond auction, which aims to absorb surplus liquidity in the financial system. On the positive side, the system is expected to receive an inflow of N155.95 billion from FGN bond coupon payments.

In response to these developments, the fixed income market has maintained a rally, resulting in declining yields. Investors are waiting for market catalysts to drive yields upward. In the secondary market, the average yield across all instruments contracted to 6.3%.

The trend in the Treasury bills market can be attributed to the combined effects of healthy system liquidity and market participants shifting to the secondary market to compensate for unsuccessful bids at the CBN auction. The CBN successfully sold Treasury bills worth N141.77 billion, fully absorbing the matured sum at a lower rate. The auction saw total subscriptions amounting to N691.86 billion, with greater interest in longer-dated bills, which accounted for 94.6% of the total subscription.

The auction concluded with the CBN selling the exact amount offered to investors. The stop rate for 364-day bills moderated by 29 basis points to 5.94%, while the stop rates for 91-day and 182-day bills decreased to 2.86% and 3.50% respectively.