Central Bank of Nigeria Achieves N406.1bn from Treasury Bills in July

In July 2023, the Central Bank of Nigeria (CBN) witnessed a significant surge in the fixed income market, raising an impressive N406.1 billion from Nigerian Treasury Bills (NTB). This remarkable increase of 98.58% compared to the N277.27 billion raised in June 2023 showcases the market’s growing strength. The CBN’s “Government Securities Summary” report revealed that the NTB auction was oversubscribed by 37.26% or N1.09 trillion, signaling considerable investor interest in the NTBs.

In order to entice investors, the CBN provided enticing yields on its NTB, taking advantage of a positive market sentiment even in the face of increasing inflation rates and a higher Monetary Policy Rate (MPR). Additionally, the implementation of new foreign exchange policies by the government played a role in reigniting interest in the stock market. The main objective of raising fresh capital through the NTB was two-pronged: to address excess liquidity in the system and to offer short-term bridging funds to support the federal government’s budgetary expenditures.

In July, the Central Bank of Nigeria (CBN) conducted only two NTB auctions, resulting in significant changes in yields. The average yield on the 356-day NTB rose to 12.15 per cent during the second auction, up from the previous 5.94 per cent in the first auction. The 91-day interest rate increased to six per cent from 2.86 per cent, while the 180-day auction interest rate reached eight per cent, up from 3.5 per cent. In the first auction, the CBN raised N141.77 billion and recorded a substantial oversubscription of N691.86 billion. Similarly, in the second auction, the CBN raised N264.33 billion and saw an oversubscription of N398.17 billion. Analysts attribute the double-digit increase in the 364-day NTB to the backdrop of the MPR hike to 18.75 per cent in July.

At its policy meeting in July, the Monetary Policy Committee (MPC) of the CBN voted to raise the MPR by 25 basis points, resulting in a new rate of 18.75 per cent. In a report, Cordros Research expressed their expectation of a healthy liquidity profile in the financial system in the near term, driven partly by increased FAAC inflows. They also anticipate an improvement in risk appetite for mid to long-dated bonds as the MPC approaches the end of its monetary policy tightening cycle. However, they maintain their belief that yields in the fixed-income market will continue to rise beyond current levels due to an ongoing imbalance in supply and demand dynamics, especially considering the high borrowing needs of the FGN for the 2023 fiscal year. The report further emphasizes the DMO’s deliberate efforts to moderate borrowing costs and mentions the possibility of CBN special bills maturing, which could have potential negative implications.