In a surprising development, the Central Bank of Nigeria (CBN) sold its one-year Treasury bills at a yield of 22.52%, marking a notable increase from 21.68% seen earlier this year. This spike comes as the market grapples with liquidity shortages. The unexpected rise deviates from recent trends, where yields had been on a steady decline due to the rebased inflation rate of 24.48%, down from 34.8%, and expectations of continued moderation in the inflation rate.
The liquidity crunch is further exacerbated by the market’s net-deficit of N98.65 billion and a mismatch between maturing bills and new issuances. On Monday, the offer size for T-bills was N162 billion against a maturing value of N550 billion, increasing the strain on liquidity. Analysts had predicted that this would likely lead to a slight uptick in yields, considering the tight conditions and high paper supply. The recent exit of foreign investors, largely driven by falling oil prices, has also contributed to a bearish market sentiment.
Investor demand for the one-year T-bill remained strong at N1.19 trillion, although this was a decline from the previous auction’s N1.8 trillion. However, the CBN only sold N678 billion worth of T-bills out of the total N1.27 trillion subscription, further reflecting the tight market. The sale of shorter-term Treasury bills, such as the 182-day and 91-day bills, saw reduced interest. Only N34.72 billion of the N70 billion 91-day bill was sold, while just N36.23 billion of the N182 billion 182-day bill found buyers.
The rise in yields across various Treasury bill categories indicates a tightening of market conditions. Analysts like Matilda Adefalujo from Meristem had anticipated higher stop rates, and the reduced liquidity, combined with the high supply of government securities, seems to have driven the increase. While the 182-day bill’s yield rose slightly to 19.52% from 19.48%, the 91-day bill’s yield remained unchanged at 17.75%.
SOURCE: BUSINESS DAY