One-year Treasury bills (T-bills) saw an oversubscription of N1.06 trillion by investors as market optimism grew despite falling yields.
However, the Central Bank of Nigeria (CBN) on Wednesday sold N223.46 billion worth of one-year Treasury bills (T-bills) to investors, despite receiving a massive subscription of N1.06 trillion.
“The high subscription at the auction yesterday signals that investors are trying to get the best rate possible as expectations for drop in rates is high,” Joshua Joseph, fixed income analyst at CSL stockbrokers said.
Joseph said everyone wants to get better before it gets worse and liquidity was also on the high side.
This led to the yield on the one year bill dropping to 23.36 percent from 26.42 percent at the previous auction, and 28.01 percent at the last two auctions. The yield at this auction is the lowest the first rate hike this year in February.
The auction saw a downward move in stop rate to 18.94 percent from 20.9 percent in the previous auction for the one year bill.
The Monetary Policy Committee (MPC) increased its rate by 50 basis points to 26.75 percent from 26.25 percent to fight Nigeria’s stubbornly high inflation.
This was met with an increase in the yield and stop rates of NT-bills, at the auction just after the hike to 28.36 percent and 22.1 percent respectively.
Read also: CBN plans N2.20trn T-bills issuance in Q4 to control liquidity
However, the recently released data for July inflation showed a decline in headline figure to 33.40 percent putting fears of a further interest rate hike away.
The Central Bank of Nigeria auctioned a total of N233.1 billion across the 91-, 182-, and 364-Day tenors and sold only N231.52 billion.
Matilda Adefalujo, fixed-income analyst at Meristem Securities, said that the high demand seen at the auction is because investors are still optimistic about the fixed income market, “hoping they can still take advantage of the elevated yields but the government did a lot of front loadings in Q1 from bonds and treasury bills.”
She said the plan of the CBN all along was to elevate rates to attract investors and to also align monetary policy rate with fixed income rates “and we saw that happen.”
“Now we are coming into a face of expansionary monetary policy, there’s a chance that they could hold rates at their next MPC meeting and you cannot embark on an expansionary policy and still be contractionary on fixed income yields,” Adefalujo said.
Expansionary monetary policy is a policy by monetary authorities to expand the money supply and boost economic activity by keeping interest rates low to encourage borrowing by companies, individuals and banks. Contractionary monetary policy is a policy used by monetary authorities to contract the money supply and reduce economic activity by raising interest rates.
She said that overall, the low allotment seen at recent auctions is the government managing their borrowing cost.
“ I believe that some of the government is exploring alternative methods of bridging the budget deficit gap and case in point is the domestic dollar bond.This way they achieve multiple objectives of attracting dollar inflows and stabilizing the naira,” Adefalujo said.
The shorter date instruments also were met with large investors’ appetite. The 91-day bill saw more than double the N19.6 billion offered, while the 182-day bill saw more 70 percent subscription than the N10.55 billion offered.
For the 182-day and 91-day bills, stop rates also dropped to 17.5 percent and 17.0 percent respectively to 19.08 percent and 21.25 percent respectively.
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