Treasury Bills Rate Weakens to 3.5% as Demand Wanes

By Dipo Olowookere

The Central Bank of Nigeria (CBN) conducted the first sale of treasury bills of the new decade on Thursday, January 2, 2020 via the primary market auction (PMA).

During the exercise, the central bank offered for sale to investors the debt instruments worth N74.8 billion, but the demand pressures continued, though lower than what were achieved in the previous exercise held on December 18, 2019.

Subscription worth N174.7 billion were received from market participants yesterday, indicating a subscription rate of 233.6 percent, lower that the 1428.6 percent rate at the last auction.

This must have informed the decision of the CBN to marginally slashed the stop rates during the exercise so as not to totally discourage investors from investing in the debt instrument.

Business Post reports that the apex bank auctioned N10.0 billion worth of the 91-day bill, N20.0 billion worth of the 182-day bill and N44.8 billion worth of the 364-day bill.

But when the bids were analysed, investors put N37.2 billion on the three-month instrument, N31.6 billion on the six-month tenor and N105.9 billion on the 12-month maturity.

It was observed that the central bank allocated to subscribers the exact amount it had offered for sale at the exercise for the respective bills, with the stop rates slightly slashed from the previous levels.

For example, the rate for the 91-day treasury bill was weakened to 3.50 percent from 4.00 percent, the 182-day tenor was slightly lowered to 4.90 percent from 5.00 percent, while the 364-day maturity marginally declined to 5.20 percent from 5.50 percent.

If the demand for the debt instrument continues to reduce at the primary market, the central bank may have to resort to gradual lowering of the rates instead of the 100 basis points it had always removed in the previous exercises.

The CBN has continued to lower treasury bills rates at the primary market to spur lending in the real sector of economy, while those for OMO bills are left high to attract foreign investors so as to boost the nation’s foreign reserves, which dropped below $40 billion some weeks ago.