More than N81.11 billion worth of unsuccessful bids were recorded at the Nigerian Treasury Bills (T-Bills) auction conducted Wednesday by the Central Bank of Nigeria (CBN) on behalf of the Federal Government of Nigeria (FGN) due to the excess liquidity in the financial system.
Fixed-income investors seeking high-yielding securities were disappointed as attempts to buy the Federal Government short-term debt instruments at attractive rates were denied as coronavirus outbreak presents limited investment opportunities.
Ayodeji Ebo, managing director, Afrinvest Securities Limited, said the further decline in stop rates is as a result of the lack of alternative investment options in Nigeria.
“We have noticed that Nigeria’s secondary T/bill market has not been very liquid as most investors are holding to their investments,” Ebo said.
Investors bid at rates which were as high as 5 percent, 7 percent and 13.18 percent on the 91-day, 182-day and 364-day bills, respectively.
Subsequently, the apex bank cleared bids at 2.3 percent and 3.4 percent on the 91-day and 182-day maturities, a further drop from the 2.49 percent and 3.78 percent recorded in the previous auction.
Akintunde Olusegun, financial market analyst at Polaris Bank Limited, said the amount on offer was low. Total aggregate subscription at the auction, he said, was N128.6bn as against N10.4bn offered. The investors that desired to win at all cost bid as low as 4.33 percent. It was a case of demand outweighing supply.
“This gives the CBN the leeway to reduce the rate as they are not willing to allot more that the quantity on offer,” Olusegun said.
Investors’ rush for the long-term maturity crashed the rate to 4.6 percent down from the 5.3 percent reported in the last auction.
“We expect the trend of declining stop rates to continue amidst the coronavirus outbreak which has triggered global economic instability,” Ebo said, adding that it is expected to impact negatively on Nigeria’s revenue, constraining the government’s ability to fund and implement the 2020 budget.
Analysis of the market result seen by BusinessDay on Wednesday showed that investors jostled for the N47.57 billion the CBN sought to raise at the auction with N128.68 billion, meaning investors oversubscribed by a whopping N81.11 billion.
Ayodele Akinwunmi, relationship manager, corporate banking, FSDH Merchant Bank Limited, said the further drop in stop rates demonstrates flight to safety in the midst of limited investment opportunities.
A breakdown of the result revealed the bid for the 91-day maturity was oversubscribed by more than three times. While the CBN offered N2 billion, investors were willing to subscribe with N8.95 billion; a total of N6.95 billion was reported as failed.
“We expected stop rates to maintain a downward trend and this is due to the low amount on offer,” said Yinka Ademuwagun, research analyst, FMCGs, United Capital plc.
Further analysis of auction result revealed that the 182-day medium-term paper was oversubscribed by N18.97 billion. While the Central Bank was offering N8.39 billion, investors were ready to put in N27.36 billion into the instrument.
The apex bank sold N37.18 billion worth of bills for the 364-day paper, but investors were ready to subscribe with N92.37 billion.
The Nigerian government plans to cut its cost of borrowing and ramp up its revenue collection, having consistently failed to meet its targets in the past half a decade.
To achieve this, the country’s central bank decided to crash interest rates on T-Bills to single digit after restricting local corporate and individual investors from patronising its OMO bills.
At the foreign exchange market, the Nigerian currency on Wednesday reversed gain as it closed at N380 per dollar as against N375 and N376 traded in the morning at the black market.
BusinessDay check shows that one dollar traded at N375 Wednesday morning in Festac area of Lagos but closed at N380 after trading. At Apapa, it weakened by N1 as it closed at N377 from the earlier N376/$.
Naira lost 0.12 percent to close at N368.02 per dollar from N367.57/$ traded the previous day at the Investors and Exporters (I&E) forex window, data from FMDQ indicated.
However, the local currency strengthened at the Bureau De Change (BDC) segment of the foreign exchange market, gaining N3/$ as it closed at N375/$ compared with N378/$ traded the previous day.
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