Nigeria’s one-year Treasury bill auction was oversubscribed to the tune of N2.49 trillion as investors lock in on current yields as they price in a rate cut after rebasing of inflation rate.
This led to a decline in its yield at the auction on Wednesday, the yield on the one-year bill dropped to 27.87 percent from 29.21 percent at the last auction.
Matilda Adefalujo, fixed-income analysts at Meristem had projected in an earlier report that it anticipates that stop rates for the offered instruments will likely decline as investors price in rate cuts by the Monetary Policy Committee (MP after the rebasing of the Consumer Price Index (CPI).
“Market participants have adopted a cautious approach to trading, pricing in macroeconomic expectations and the potential for future rate cuts. As a result, many may be inclined to lock in funds at current rates or slightly lower, in anticipation of continued reductions in subsequent auctions,” it said.
The MPC meeting, which is held bi-monthly has been postponed to February 17 and 18, three months after the last meeting in November, as authorities buy time for the rebased inflation figures.
The postponement to February buys the MPC time for the new inflation methodology to kick off in January.
Economic analysts argue that the GDP rebasing will yield an exaggerated GDP growth number, and the CPI rebasing will downplay the inflation rate.
Read also: FG’s inflation target of 15% achievable on FX stability – Oyedele
In the new methodology, the proposed base year for inflation computation is 2024. The year was proposed to capture the structural changes driven by the removal of subsidies on FX and PMS.
System liquidity at a deficit of N373.66 billion on Monday made it more daunting for healthy participation in the auction, however inflows from the FAAC allocation, FGN bond coupon payment of N281.95bn, and the Federal Savings Bond coupon payment of N0.56 billion are set to bolster liquidity and sustain demand for bills at the auction.
These factors contributed to an oversubscription of more than six-fold the N400 billion offered on the one-year T-bills.
The CBN sold only N712.47 billion worth of the N2.49 trillion subscription it got. This is almost 50 percent higher than the N1.47 trillion subscription seen at the last auction.
Analysts at CardinalStone perceive that CBN is close to activating a rate cut and see legroom for a cumulative downward rate adjustment of between 100 —200 basis points in the second half of 2025.
In 2025, N31.26 trillion liquidity is expected from OMO, NTB, and bond maturities and coupons.
On the debt front, the government will likely borrow about N9.16 trillion from the domestic market.
Considering these factors, CardinalStone projects a moderation in yields later in the year as the CBN is likely to retain some low liquidity tolerance from the context of ensuring rollovers, and a lower borrowing compared to 2024 assuming the issuance of N2.0 trillion in dollar-denominated bonds, leaving a balance of N7.16 trillion to be asplit of NTB and bonds
“ Overall, we expect yields to be mostly stable in H1’25 before moderating in the second half of the year,” it stated.
The 182-days and 91-days treasury bills saw minimal interest by investors. Only N17.90 billion of the N80 billion 182-days bill was sold. Likewise the 91-days bill only 26.53 billion was sold.
Yields on the 182-day and 91-day bills remained the same for the ninth consecutive auction at 20.39 percent and 18.86 percent respectively.
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