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Investors’ rush for T-Bills ahead of OMO, Bond maturity pushes rates lower

…as investors place N133bn in failed bids

Fixed-income investors seeking high-yielding securities ahead of the over N1 trillion expected to hit the financial market were disappointed as attempts to buy the Federal Government short-term debt instruments at attractive rates were denied.

More than N133.43 billion worth of failed transactions was 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) as investors bid at rates as high as 5.9 percent, 9.5 percent and 1318 percent on the 91-day, 182-day and 364-day bills.

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Subsequently, the apex bank lowered rates across the three tenors to 3 percent, 4 percent, and 6.54 percent, respectively. While the rates on  91-day, 182-day are the lowest since January 6, 2016, they compare with 3.5 percent, 4.5 percent and 6.50 percent they cleared on the 91-day, 182-day and 364-day bills at the previous T-Bills auction which saw rates crash to a single digit for the first time in 3 years.

Investors jostled for the N154.38 billion the CBN sought to raise at the auction with N287.81 billion, meaning investors oversubscribed by a tune of N133.43 billion, as compiled from the auction result seen by BusinessDay.

According to Yinka Ademuwagun, research analyst, FMCGs, United Capital plc, the performance of the rate was expected as above N1 trillion is expected to hit the financial system on Thursday, 13 February 2020.

“With some excess liquidity from the OMO part of the maturity set to hit the system, you would expect that investors would demand more NTBs compared to what was offered -this was what played out as subscription outweighed offers,” Ademuwagun said.

The Nigerian financial market is expected to witness increased liquidity following the maturing Open Market Operation (OMO) bills worth N440 billion coupled with Bond of N606 billion both expected to be due this week.

A breakdown of the result reveals that Wednesday’s sale was oversubscribed by more than 11 times with most demand on the 91-day paper. The bid for the 91-day maturity was oversubscribed by more than 5.8 times. While the CBN offered N4.39 billion for the 91-day instrument, investors jostled for N29.83 billion.

The 182-day medium-term paper was oversubscribed by 4.2 times. The Central Bank offered N10 billion but investors were ready to put in N52.5 billion into the instrument.

The apex bank sold N4.38 billion worth of bills for the 91-day paper, N10 billion worth of bills were allotted on the N182-day paper, while bills valued at N140 billion were sold on the 364-day paper, the same amount the apex bank offered at the auction.

“Due to the small size of the offer for 90 and 182 days (N14.0bn) you would expect rates to fall on that end, as one or two investors with the excess fund can just clear the entire offered amount,” a Lagos-based analyst said.

Further breakdown of the auction result reveals that the one-year instrument was oversubscribed by less than two times. While the apex bank offered N140 billion, investors allotted N205.48 billion, oversubscribed by N64.48 billion.

“Unlike the short and medium-term instruments, the one-year maturity was offered N140.0bn which is expected to be shared among a mix of bullish and bearish investors,” a market analyst told BusinessDay.

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 corporates and individual investors from patronising its OMO bills.

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