Liquidity Surge Reduces T-Bill Yields, Eases Borrowing Costs for Nigerian Government
Increased liquidity in Nigeria’s financial markets has led to a decline in the yields on one-year Treasury bills (T-Bills), easing short-term borrowing costs for the government. At the most recent auction, subscriptions for one-year T-bills surged by 63%, reaching N1.36 trillion compared to the previous N830 billion. This boost in market liquidity is attributed to recent inflows from maturing securities and the distribution of N1.678 trillion in February 2025 Federation Account Allocation (FAAC) to all levels of government.
The demand for T-bills, especially one-year maturities, drove yields down from 24.90% to 24.42%, reversing an upward trend in previous auctions. Market analysts note that a key factor in this change is the stability of the naira, in contrast to recent foreign exchange volatility. As a result, the Central Bank of Nigeria (CBN) no longer faces strong pressure to increase yields to attract foreign portfolio investors, who had previously been exiting the market.
Looking ahead, experts suggest that the CBN’s primary challenges will involve maintaining a stable exchange rate and lowering interest rates further. This will require balancing foreign investor interest with domestic liquidity needs. Some analysts predict that the CBN might aim to stabilize the yield at the current levels, which are seen as acceptable to investors, to maintain the exchange rate stability while pursuing alternative strategies to boost foreign reserves.
While the one-year T-bills have seen significant demand, shorter-term bills like the 182-day and 91-day T-bills attracted less interest, with only partial subscriptions. Analysts foresee that the CBN may either maintain yields for a while or allow the naira to depreciate further to lower interest rates and reduce borrowing costs, depending on how foreign investors react to currency pressures in the coming months. The parallel market also saw minor fluctuations, with the naira appreciating slightly against the dollar.
Source: business day