Cbn Generates N9.27Tn From Ntbs As Investors Chase Longer Maturities And Increased Returns.

Kayode Tokede

Investors continue to show confidence in Nigerian Treasury Bills (NTBs) as the Central Bank of Nigeria (CBN) raised an impressive N9.27 trillion through NTB auctions from January to August 2024. NTBs, also known as T-Bills, are short-term debt securities issued by the government to address budget deficits and finance projects. They are considered one of the safest investment options backed by the full faith and credit of the Federal Government of Nigeria (FGN).

The significant amount raised in just eight months reflects investors’ trust in the Nigerian government’s debt instruments. The CBN’s strategy of tightening monetary policy and conducting large NTB auctions aims to tackle inflation and stabilize the foreign exchange market, fostering a more balanced economic environment.

Primary market auction analysis reveals that the CBN offered N4.59 trillion worth of NTBs, receiving total subscription bids of N30.04 trillion. The N9.27 trillion in NTB sales during the first eight months of 2024 highlights the strong demand for Nigerian sovereign instruments, particularly in longer tenors. This indicates that investors are seeking higher returns and are willing to engage with longer maturity profiles.

Compared to the same period in 2023, the demand for long-maturity NTBs has continued to grow, with a stop rate reaching 22.1% in July 2024, the highest of the year. The variation in stop rates across different tenors reflects investor sentiment towards short-, medium-, and long-term economic prospects.

The highest demand was observed for the 364-day NTBs, with an offer of N3.36 trillion and a total subscription of N28.33 trillion, surpassing other tenors. Despite a higher yield reflecting the risk premium for extended maturities, investors demonstrated their willingness to hold longer-term bills, as suggested by the CBN’s allotment of N8.1 billion at a stop rate of 20.9% as of August 21, 2024.

According to Mr. Tajudeen Olayinka, the Chief Executive Officer of Wyoming Capital and Partners, the high yield is influenced by factors such as demand and supply. He believes that increasing NTB supply encourages higher stop rates to attract foreign inflows, improve dollar liquidity, and stabilize the Naira exchange rate, ultimately achieving market equilibrium.

For the mid-term 182-day NTBs, an offer of N449.75 billion resulted in total subscriptions of N664.54 billion and an allotment of N476.08 billion. Notably, the stop rate increased significantly from 4.22% in January 2024 to 19.2% by August 2024.

In the case of the shortest tenure of 91 days, the CBN offered N780.62 billion, received total subscriptions worth N1.05 trillion, and allotted N682.72 billion at a stop rate of 18.2%. This indicates strong investor demand for short-term securities.

United Capital analysts, in their report titled “Balancing Act: Nigeria’s Path to Economic Stability H1-2024 Economic Outlook,” revealed that the N4.83 trillion proceeds from NTBs and Bonds issued in H1 2024 were used to settle Ways and Means Advances from the CBN. The CBN’s desire to stem rising debt costs has led to higher borrowing expenses in H1 2024.

In H2 2024, short-term rates are expected to gradually decrease due to the CBN’s elevated cost of capital and improved system liquidity prospects. However, the CBN’s hawkish stance will likely keep rates elevated around current levels in Q3-2024, awaiting the high base effect on inflation.

The CBN plans to re-issue N2.2 trillion worth of maturing NTBs in the fourth quarter of 2024. Starting in September, a total of N233.3 billion will be issued across different maturities, followed by another NTB issuance in September for N161.9 billion. Later in October and November, more substantial auctions are scheduled, with the final issuance in November totaling N610.8 billion.

The re-issuance of NTBs is a strategic tool used by the CBN to manage liquidity, control inflation, and stabilize the naira. By rolling over maturing bills, the CBN aims to mitigate their impact on government finances while providing a safe investment option for investors.

In the first half of 2024, the CBN sold Treasury Bills worth N8.4 trillion for tenors ranging from 91 days to 364 days. The stop rate varied between 2.44% for 91-day bills and 21.49% for 364-day bills.


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