Party over as T-bills yield falls to one-year low of 22.58%

…Signals rate cut at MPC meeting

The bull-run at the Nigeria treasury bill (T-bills) market seen since last year came to an end, as yield on the one-year bill auction fell to lowest seen in a year at the primary market.

At the auction on Wednesday, yield dropped to 22.58 percent from 25.49 percent as investors priced in new inflation figures.

The current yield is the lowest yield since the beginning of the hawkish policy stance by the Monetary Policy Committee, which led to an 850 basis point hike in interest rate.

Matilda Adefalujo, a fixed-income analyst at Meristem, had projected in an earlier report that she anticipated that stop rates for the offered instruments would likely decline.

“This is driven by a cautious outlook on inflation (considering the significant decline in inflation to 24.48 percent vs 34.80 percent in December) and prevailing market sentiment,” she said.

Yield on the one-year bill grew from nine percent at the first auction in January 2024 to 23.44 by the end of February, which was a signal of the rate hikes that happened. It then spiked to 27.33 percent in March 2024 just after the first rate hike by the MPC.

By November, it had peaked at 30.7 percent before gradually declining to current levels.

Read also: One-year T-bills attract N3trn on high yields

Similarly, yields on OMO bills have also declined, dropping by 300 basis points at the last auction.

Analysts say that this signals a potential rate cut at the MPC meeting today.

The MPC, which had earlier postponed its meeting twice to buy time for the release of the rebased inflation report, are meeting and will announce its rate decisions today. The National Bureau of Statistics reported a drop in inflation rate to 24.48 percent using the new methodology.

Hence, Nigeria’s real return is in the positive of 3.02 for the first time in a long while.

However, demand for the one-year bill remained high at N2.3 trillion as investors continue to lock in on current yields and robust market liquidity.

Though there have been drops in yields, the 365-day treasury bill auction has witnessed a huge demand, with subscriptions crossing over N1 trillion at every auction this year.

Bills that matured on Wednesday stood at N1.27 trillion from N955.40 billion in the previous auction—which could stimulate strong demand for reinvestment options.

Adefalujo mentioned that the government’s emphasis on managing borrowing costs could have influenced the CBN to adjust rates downward.

“On the other hand, the higher offer size of N670 billion, which is significantly lower than the volume of maturing bills N955.40 billion, could have prompted CBN to consider reducing rates on the instruments,” she said.
Overall, the CBN sold only N774.1 billion worth of the N2.4 trillion subscription it got.

In 2025, N31.26 trillion liquidity is expected from OMO, NTB, and bond maturities and coupons.

On the debt front, the government will likely borrow about N9.16 trillion from the domestic market.

The 182-day and 91-day treasury bills saw minimal interest by investors. Only N34.76 billion of the N80 billion 91-days bill was sold. Likewise the 182-days bill only 34.98 billion was sold.

Yields on the 182-day and 91-day bills dropped for the first time in ten auctions to 19.97 percent from 20.39 percent and 17.76 percent from 18.86 percent respectively.