T-Bill rates crash to 9-month low as investors place N378.71bn in failed bids

Fixed-income investors seeking high-yielding securities in the light of the prevailing developments in the markets have once again been disappointed, as attempts to buy the federal government short-term debt instruments at attractive rates were denied.

More than N378.71 billion worth of failed transactions was recorded at the Nigerian Treasury Bills (T-Bills) auction conducted last Wednesday by the Central Bank of Nigeria (CBN) on behalf of the Federal Government of Nigeria (FGN) as investors bid at rates as high as 5.6 percent, 6.75 percent and 10 percent on the 91-day, 182-day and 364-day bills.

Subsequently, the apex bank lowered rates across the three tenors to 2.5 percent, 3.5 percent, and 6.5 percent, respectively. While the rate on the 91-day, 182-day bills have remained mostly flat this year, the 364-day bill dropped to its lowest level in nine months.

Investors jostled for the N196.17billion the CBN raised at the auction with N574.88 billion, causing the failed bids to jump 34.29 percent from the N282 billion reported in the previous auction.

The decline in T-Bills rates, the interest the Nigerian government pays investors for borrowing their money, has remained relatively low, further deepening investors’ inflation-adjusted return.

The sixth successive month of a slowdown in Nigeria’s inflation rate to September has not brough much relief to fixed income-investors reeling from a negative real return.

While the shrinking inflation rate is good news for investors as it tends to increase real return on investment, the decline in Treasury Bills (T-bills) rates, which has remained low, leaves investors with little to cheer.

The investment return on Nigeria’s one-year treasury bill dropped to 6.5 percent at the last auction in the first week of November, from a near 10 percent of 9.15 percent on July 14 2021, the inflation rate on the other hand was 16.63 percent in September. That leaves a real return, the difference between the expected return on investment of an asset and the rate of inflation, at -10.13 percent, higher than the -9.64 percent from the previous auction.

When the same was inputted for the 7.5 percent recorded for the 364-day bill for September, it reported a negative real return of 9.17 percent, lower than November’s -10.13 percent

However, compared with the -14.47 percent level it was in January 2021, the October figure is higher by more than 500 basis points.

Read also: How CBN’s intervention saved power sector from collapse over liquidity crisis, by Experts

While investors are taking note of the shrinking negative real return, market analysts said Nigeria’s negative real return is deterring foreign investors who in search of high returns are exploring the opportunities in neighbouring markets with positive real returns.

“The negative interest rate environment is bound to deter foreign investors as there are several alternative countries in the Emerging and Frontier Market landscape with more attractive real return on investments,” Ayorinde Akinloye, Associate Investment Research in United Capital plc said.

A breakdown of the result reveals that even though interest for the debt instruments waned when compared with the previous primary market auction, Wednesday’s sale was oversubscribed by more than 2.9 times with most demand on the 364-day paper.

The CBN sold N4.12 billion worth of bills for the 91-day paper, N2.99 billion worth of bills were allotted on the N182-day paper, while bills valued at N189.06 billion were sold on the 364-day paper.

Analysis of the auction result for the first transaction in November showed that investors’ appetite for the longer 364-day bill remained higher than the 91-day and 182-day bills.

While the 364-day bill with a higher interest rate was oversubscribed by N377.15 billion the shorter 91-day and 282-day bills were oversubscribed by a combined N1.56 billion.

The CBN planned to raise N4.80 billion for the shorter 91-day bill but investors said they were willing to subscribe with N4.87 billion. The apex bank eventually issued N 4.12 billion, N750 million less than the CBN’s initial offer.

Investors were willing to bid with N 3.80 billion for the N2.99 billion raised for the 182-day bill, N810 million more than what the CBN raised. The amount raised by the apex bank, however, was lower than its initial offer of N7.99 billion by 5 billion.

While the CBN offered to raise N138.03billion through the longer 364-day Treasury bill, investors said they were willing to invest more with N 566.21billion. The apex bank later raised N189.06 billion. The apex bank issued N51.03 billion worth of more bills.

The increased investors’ appetite reported at the last Treasury Bill auction was different when compared to the precious issuance as investors in the past months reduced liquidity in the market amid the search for high yielding instruments.

Dampened investors’ interest in the risk-free government instrument amid failed attempts to get high returns from the short-term papers forced investors to redirect their funds to the more attractive banks’ placement and commercial paper (CP), according to BusinessDay findings.

Citing where investors were redirecting their investment, Ayo Ebo, Head, Retail Investment, Chapel Hill Denham said “a lot of corporates have been issuing commercial paper at attractive rates.” This is coupled with “placement with banks that also comes at an attractive return.”

On the yield’s expectation, Akinloye said “we expect heavy government borrowing to keep the long-term yields tracking higher.”

However, the likely increase in the demand for the government short term treasury may lead to further rate decline, according to analysts.

Checks by BusinessDay show that Nigeria’s risk of reporting its biggest budget deficit on record next year may be a blessing in disguise for fixed income investors as government borrowing is expected to fuel a spike in interest rates.

Like in the past five years, if Nigeria’s unrealistic revenue trend persists next year, the cash-strapped largest economy in Africa would need to increase its debt profile, an opportunity for investors whose real return on investment have been in the negative.

The Federal Government is targeting revenues of N10.13 trillion and a deficit of N6.258 trillion in 2022.

Since 2016, Nigeria has attained an average of 55 percent revenue performance, the reason why analysts have criticized the government for raising the bar each year despite obvious challenges in attaining revenue targets.

The shortfall between actual revenue receipt by the Federal Government and projected revenue worsened when a global collapse in oil prices happened in 2014.

The Federal Government’s actual retained revenues stood at N3.727 trillion in 2014, as analyzed from data by the Budget office of the federation. This value represented a shortfall of N4 billion from the N3.731 trillion projected in the 2014 budget.

The same trend followed in 2016, 2017, 2018 and 2019 when variations between actual and budgeted revenue stood at N2.03 trillion, 3.5 trillion N3.2 trillion and N5.58 trillion, respectively.
After the pandemic spurred a budget revision in 2020, the revenue shortfall hit N1.42 trillion with revised revenue of N5.365 trillion and actual revenue at N3.937 trillion.

If the case is the same next year, Nigeria could be looking at a revenue of about N5.57 trillion and a budget deficit of about N10.82 trillion at the end of the fiscal year, almost the size of the country’s entire budget in 2020.

“I expect the FG’s huge deficit finance plan will pressure the debt market leading to a spike in interest rates. However, investors who are avoiding long-term debt instruments (bonds) are likely to lock their funds at the short-end of the curve (NT-bills) which should spur demand and consequently decline in short term rates,” Akinloye said.


Wednesday’s sale was oversubscribed by more than 2.9 times with most demand on the 364-day paper.

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