Nigeria’s one-year treasury bill demand has decreased alongside liquidity challenges despite higher yields. The CBN’s recent auction raised yields but saw the lowest demand this year. Analysts attribute the decline to liquidity constraints and shifts in foreign investments influenced by naira stability. Limited interest in 91-day and 182-day bills was observed, with rising yields attempting to attract investors back.
Demand for Nigeria’s one-year treasury bills (T-bills) has significantly declined, despite the Central Bank of Nigeria’s (CBN) ongoing efforts to increase yields in recent auctions. In a surprising adjustment, the CBN introduced an additional auction, resulting in yields for one-year T-bills rising to 24.90 percent from 22.52 percent. This upswing, attributed to persisting liquidity constraints, has created a positive real return of 1.72 percent, marking the first occurrence since May 2020.
Despite the highest offer of N800 billion since February 2024, actual demand plunged to N861 billion at the Wednesday auction—the lowest annually, compared to N1.5 trillion at the initial auction of 2024. Previously, demand for T-bills peaked at N3.2 trillion against a mere N670 billion supply, reflecting the growing liquidity crunch in the system.
Tajudeen Ibrahim, head of research at Chapel Hill Denham, noted that systemic liquidity constraints primarily govern domestic demand for T-bills. He explained that while foreign portfolio investors (FPIs) show interest in OMO bills, one-year bills now offer an attractive real return, providing them an incentive to engage, especially against a backdrop of stable international bank benchmark rates.
Matilda Adefalujo, a fixed-income trader, supported these observations, emphasizing the low liquidity as a critical factor in reduced demand. She highlighted that the CBN’s additional auction aimed to signal the attractive yields of NT-bills and to frontload borrowing before a possible rate cut in May.
Earlier in the year, foreign banks expressed optimism about Nigeria’s T-bills. J.P. Morgan reported positive reform trends but cautioned that their interest also hinged on the stability of the naira. Initially strong, the naira faced depreciation pressures in mid-March, exacerbated by global tariff tensions and prompting some investors to prioritize safer domestic assets.
Analysts reported that FPIs have been withdrawing from the T-bills market, causing exchange rate spikes. Measures by the CBN to elevate yield rates on OMO bills were designed to deter these withdrawals. Furthermore, Kingskin Okojie, a treasury analyst, elaborated that reduced FPI participation in T-bills correlates with FX market fluctuations; rising yields could mitigate FPIs exiting as they seek attractive returns on carry trades.
The CBN’s latest auction yielded modest results, with just N436.72 billion in one-year T-bills sold and N504 billion across all tenors. Total T-bill sales for 2024 now stand at N4.7 trillion. Notably, the 91-day and 182-day bills experienced limited attention, with only N27.19 billion sold from N100 billion offered in 91-day bills, and N40 billion in 182-day bills, as their yields also increased respectively to 20.39 percent and 18.86 percent w.
The demand for Nigeria’s one-year treasury bills faces a notable decline, influenced by liquidity issues and investor behavior. While the recent increase in yields provides a positive return, it remains insufficient to attract a significant demand spike. Foreign investment sentiments can be swayed by the influence of the naira’s stability and the broader economic environment. The CBN’s measures demonstrate a proactive approach to stabilize the market and enhance T-bill attractiveness amidst prevailing economic challenges.
Original Source: businessday.ng
