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Investors responded negatively by reducing their holdings of Nigerian Treasury Bills (NTBs) in the secondary market following consecutive cuts in spot rates at the Central Bank of Nigeria’s (CBN) primary market auction last week.
To attract foreign portfolio investors, the CBN offered a spot rate of up to 25% on one-year Treasury bill instruments. Despite this high offer, total subscription levels have consistently outpaced the amounts offered by the CBN at various primary market auctions since the beginning of the year.
The changing market dynamics, driven by the CBN’s interest rate hikes aimed at combating inflation, have kept yields on fixed interest securities elevated. This condition has also increased investment in securities from local deposit money banks. However, the spot rate on one-year Treasury bills was reduced following a record level of heavy subscriptions at the CBN auction last week.
During the recent primary auction, the CBN offered N44.23 billion to refinance maturing bills. Analysts noted that this auction size was significantly smaller than the N221.17 billion worth of Nigerian Treasury bills sold at the previous auction.
Despite the smaller offering, investors bid NGN407.76 billion, with the CBN allotting N55.23 billion. In contrast, the previous auction saw total demand of N713.89 billion, with the CBN allotting NGN278.43 billion worth of Nigerian Treasury bills to market participants.
As a result, the stop rates for the 92-day, 182-day, and 364-day instruments slightly declined to 16.30%, 17.44%, and 20.50%, from 16.50%, 17.50%, and 20.67% in the previous auction, respectively.
Last week, market sentiment was mixed. The average treasury yield increased to 21.90% from 21.02% the previous week, while the average bond yield remained constant at 18.76%.
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