Treasury bills yield rise to 17.67% in 3months on rate hike

Yields in the Treasury Bills market increased at a much higher rate to 17.67 percent as at March 26, 2024 from 6.29 percent at the beginning of the year.

This follows the unprecedented rise in the monetary policy rate by 600 basis points so far in the year to 24.75 percent, thereby pushing up yields across markets, according to a report by FSDH Research.

The FGN Bond and Treasury Bills markets experienced a significant yield rise in 2024. The average yield in the FGN Bond market increased from 14.13 percent on the first trading day of the year to 19.29 percent as at March 26, 2024.

According to analysts at parthian Partners, Treasury Bills, also known as T-Bills, are short-term government-backed securities issued by the CBN. They are issued when the government requires a short-term loan of funds. They can reach maturity in 364 days. T-Bills are sold at a price lower than their face value.

The analysts explained how treasury bills work, saying the CBN sells Treasury Bills in a biweekly auction. Buyers submit bids, and the average lowest bid is chosen. The government sells these bills at a discount (lower than face value). The investor then holds the T-Bills until the maturity date and is eventually paid the face-value.

“Here’s a typical example to understand how T-bills work. The CBN sells a T-bill for N200,000. FGN issues the T-bills at N180,000 (i.e., at a 10 percent discount rate). Tunde, an investor pays 180,000 to buy the T-Bill. At maturity, he will be paid the face value of N200,000. The N20,000 will be Tunde’s profit,” the analysts said.

The Central Bank of Nigeria (CBN) said it will issue a total of N1.64 trillion treasury bills in the second quarter of 2024 as the same amount will be maturing between March and May, this year.

Africa’s largest economy’s big bank disclosed this in Nigeria’s treasury bills programme calendar, released on its website on Friday, 1,March, 2024.

A breakdown of the treasury bills programme to be issued in the next three months, which represents the amount that would mature during the same period, consists of a total of N414.29 billion for 91-day tenor, N43.75 billion for 182-day tenor and N1.18 trillion for 364-day tenors.

The CBN issues treasury bills twice in a month to help the Federal Government fund its budget deficit, support banks in managing liquidity in the system and curb inflation.

Nigeria’s Central Bank on Tuesday raised the key interest rate by 200 basis points to 24.75 percent from 22.75 percent in February 2024, to rein in inflation and stabilise FX.

In one month, the CBN has jerked its benchmark interest rate, also known as the Monetary Policy Rate (MPR) by 600 basis points to 24.75 percent in March 2024. Last month, the apex bank increased the interest rate by 400 basis points to 22.75 percent.