T-Bills yields climb as CBN clears 1-yr paper at highest rate in five months

Nigeria’s Treasury Bills (NTB) yields rose sharply at the latest primary market auction, with the benchmark one-year paper closing at its highest stop rate in about five months as the government sought to absorb strong investor demand amid rising inflation expectations.

“The latest Treasury Bills auction closed with rates rising across all tenors, with the largest increase on the 364-day bill,” said Ayodeji Ebo, managing director of Afrinvest Securities.

“The one-year tenor remained the major attraction, with subscriptions of N1.66 trillion against an offer of N800 billion, showing continued strong appetite for longer-dated government securities.” Ebo said

Results from Wednesday’s Treasury Bills Primary Market Auction showed the 364-day instrument recorded a stop rate of 17.34 percent, up from 16.35 percent at the previous auction held on June 3.

The increase of 99 basis points pushed the true yield on the instrument to 20.98 percent, restoring returns above the 20 percent mark for the first time since the beginning of the year.

Investor demand remained concentrated on the one-year tenor despite the higher pricing. Total subscriptions reached N1.66 trillion against an offer of N800 billion, while allotments stood at N1.29 trillion, accounting for the bulk of securities sold at the auction.

The shorter-dated instruments also recorded higher rates. The 91-day bill attracted subscriptions of N129.69 billion against an offer of N100 billion, with allotments of N129.32 billion. Its stop rate rose to 16.28 percent from 16.05 percent at the previous auction.

Similarly, the 182-day paper recorded subscriptions of N70.22 billion against N100 billion offered, with allotments of N70.17 billion. The stop rate increased to 16.50 percent from 16.19 percent previously.

The auction outcome marks a significant reversal from the yield moderation trend that dominated much of the first half of the year. The stop rate on the 364-day bill had fallen steadily from 18.47 percent in January to 16.15 percent in May before beginning to rise again this month.

Market analysts had anticipated a higher-rate outcome ahead of the auction, citing the larger supply of bills on offer and a renewed uptick in inflation.

Meristem Securities noted before the auction that the Debt Management Office significantly increased the offer size to N1 trillion, compared with maturing bills worth only N184.8 billion, creating a substantially larger funding requirement.

The investment firm also pointed to the rise in headline inflation to 15.93 percent in May from 15.69 percent in April, arguing that investors would likely demand higher returns to preserve real yields.

“We expect rates at the Treasury bills auction to trend higher, driven by a combination of increased supply and rising inflation expectations,” Meristem said in its pre-auction note.

Despite the increase in yields, liquidity conditions remained supportive. Average system liquidity remained above N4 trillion in recent weeks, while reinvestment demand from maturing securities continued to provide ample funds for participation in government debt auctions.

As the strong oversubscription across the auction suggests investor appetite for risk-free securities remains robust, particularly at the longer end of the curve where returns now approach 21 percent on a true-yield basis.

Analysts say demand for Treasury bills is likely to remain resilient in the near term as investors continue to favour government securities admist uncertainty in other asset classes and expectations that interest rates could remain elevated for longer.