One-year T-bills yield spikes to 22.52% amid liquidity crunch

In an unexpected turn, the Central Bank of Nigeria (CBN) sold its risk-free one-year Treasury bill at 22.52 percent, the first increase this year as the market struggles with liquidity.

At the auction on Wednesday, yield spiked up to 22.52 percent from 21.68 percent on tight liquidity. This is a deviation from the past auctions where yields have been on constant decline in response to the rebased inflation rate of 24.48 percent from 34.8 percent, coupled with expectations of further moderation in the year.

As of Monday, the market had a liquidity net-deficit of N98.65 billion, and a lower maturing profile compared to the offer size of N162 billion vs N550 billion, also fuelled the tight liquidity state.

Matilda Adefalujo, fixed-income analyst at Meristem, had projected in an earlier report that it anticipates that stop rates for the offered instruments will likely inch upward.

“ A marginal uptick in rates remains possible due to the liquidity condition and the high paper supply. Moreover, with the market’s recent bearish performance, likely due to foreign investors’ exit amid lower oil prices, market players may tilt towards higher rate expectations,” she said.

Read also: One-year T-bills plunge to 21.68% as liquidity floods market

Since the last auction, the secondary T-Bills market has remained largely bullish, driven by strong investor demand for attractive yields and poor liquidity.

Efe Balogun, a wealth manager of Ayoolainvestsng, a wealth management firm, also mentioned that the results from the last auction and low liquidity drove yields up.

“ At the last auction, there were N1 trillion unallocated bills, at this auction it reduced to about N400 billion. Remember we are in a tight market. CBN will use all tools to maintain market stability,” she said.

Demand for the one-year bill remained high at N1.19 trillion, although lower than N1.8 trillion of the previous auction.

Overall, the CBN sold only N678 billion worth of the N1.27 trillion subscription it got.

The 182-days and 91-days treasury bills saw minimal interest by investors. Only N34.72 billion of the N70 billion 91-days bill was sold. Likewise, the 182-days bill, only N36.23 billion was sold.

Yields on the 182-day also increased to 19.52 percent from 19.48 percent, while that of 91-days remained at 17.75 percent.