By Dipo Olowookere
The gradual rise in the stop rate of the one-year treasury bill continued on Wednesday as the Central Bank of Nigeria (CBN) sold it at 7.00 per cent to investors.
Why rates started to decline
A few years ago, the apex bank, as part of efforts to make domestic borrowing cheaper for the government to reduce debt servicing, began a gradual cut in the interest rates.
At a point, the financial asset was selling at 20 per cent and this made it very attractive to different classes of investors; retail, institutional and offshore.
The CBN observed that some investors were approaching the banks to obtain loans to invest in T-bills, while financial institutions were also abandoning their core business of lending to invest in government securities.
To address this, the central bank started to reduce the interest rates to make an investment in treasury bills less attractive. The stop rate of the financial instrument was pruned down to nearly zero per cent until the bank made a U-turn and started to raise the rates upwards again.
Details of Wednesday’s exercise
Yesterday, the apex bank auctioned treasury bills worth N47.1 billion with N1.5 billion worth of 91-day bill, N8.4 billion worth of 182-day bill and N37.2 billion worth of 364-day bill.
Business Post observed that investors responded well to the exercise as N6.7 billion was staked on the three-month maturity, N10.6 billion was staked on the six-month tenor, while N99.5 billion was staked on the one-year instrument. This amounted to N116.8 billion.
However, the banking sector regulator, which conducts the sale for the Debt Management Office (DMO) on behalf of the federal government, sold N2.5 billion for the 91-day bill, N5.9 billion for the 182-day bill and N53.5 billion for the 364-day bill, totalling N61.9 billion.
For the stop rates, the 91-day and the 182-day bills remained flat at 2.00 per cent and 3.5 per cent respectively, while the 364-day bill cleared at 7.00 per cent in contrast to 6.5 per cent it cleared at the preceding session.
