Rising Demand for Treasury Bills Crashes Rates to 1.85%

By Dipo Olowookere

The Central Bank of Nigeria (CBN) sold the treasury bills to investors for as low as 1.85 percent at the primary market on Wednesday, April 29, 2020.

Business Post reports that the huge demand for the investment tool gave the central bank the confidence to revise the rates lower than the previous session.

Like in the previous exercises, the apex bank auctioned the bills across three tenors and yesterday’s auction witnessed another spike in subscription.

An analysis of the sales showed that N49.8 billion worth of the 91-day bill was offered for sale, but bids valued at N91.5 billion were received, representing 183.7 percent subscription level.

Also, N10.6 billion worth of 182-day instrument was auctioned for sale, but market participants submitted bids valued at N27.7 billion, indicating a subscription level of 261.3 percent.

For the last tenor, 364-day, the central bank auctioned N71.1 billion, but bids worth N149.0 billion were received from subscribers, representing subscription level of 209.6 percent.

Business Post reports that the apex bank, when doing the allotment yesterday, sold the exact amount of the debt instruments it intended to sell at the market, though at lower rates.

The CBN sold N49.8 billion of the 91-day bill at 1.85 percent, lower than 1.93 percent of the previous exercise. It allotted N10.6 billion worth of the 182-day bill at 2.50 percent, lower than 2.74 percent at the previous PMA and sold N71.1 billion of the 364-day instrument at 3.84 percent, lower than 4.00 percent of two weeks ago.

What yesterday’s exercise has shown is that investors are willing to invest in low-risk investment tool like the T-bills at very low rates instead of diverting the funds to high risk investments, which might yield higher or near the current inflation rate.

Last month, the National Bureau of Statistics (NBS) said inflation in the month of March 2020 increased to 12.26 percent from 12.20 percent in February 2020.

If the demand for treasury bills continue to rise at the market, rates will further increase.