How T-Bills Rates Are Determined—DMO

By Dipo Olowookere

The Debt Management Office (DMO) has emphasised that the interest rates government offers the Nigerian Treasury Bills via primary market auction (PMA) conducted twice a monthly is mainly determined by investors.

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A statement issued by the agency on Wednesday disclosed that the rates are never predetermined by the debt office or the Central Bank of Nigeria (CBN) as some would have thought.

According to the DMO, different bidders come up with the rates, while the DMO or the apex bank only sell as the prevailing rates at the secondary market.

“Investors bid at the NTBs auction at their own interest rates. Thus, the rates on the NTBs are not predetermined or determined by the CBN or the DMO.

“The rates at which the investors bid are entirely at their discretion but will typically depend on prevailing secondary market rates, their portfolio needs and investment preferences.

“In allotting to bidders oftentimes, the DMO and the CBN will also be guided by similar factors and the implications for markets and macroeconomic stability,” a statement from the debt office said.

It said further that, “Taking into account all these factors, the interest rates at the auctions will ultimately be determined by demand and supply. The claim that the CBN increased rates to attract investors at the NTB auction is not correct.”

DMO said it made this clarification following a report that the T-bills rates were recently hiked for fear of capital flight ahead of the 2019 general elections.

“Having highlighted the many factors considered by investors in the NTB as well as the key considerations of the DMO, and equally important, the fact that foreign investors still participate in the domestic fixed income securities markets, it is wrong to attribute the auction rate to fears about capital flight.

“To buttress this point, interest rates on the NTBs in the first half of 2017 were much higher than the present rates, at a time when there was no election approaching,” the statement said.