Yield on 1-yr T-bills dips further as DMO manages borrowing costs

Nigeria’s one-year Treasury bills (T-bills) auction witnessed further decline in its yield as evidenced in the auction on Wednesday.

The declining yield in one-year T-bills comes as the Debt Management Office (DMO) manages borrowing costs with decreased auction size.

At the auction, the yield on the one-year bill dropped to 29.51 percent from 29.75 percent, the second consecutive decline after yield peaked at 30.70 percent three auctions ago.

The sum of N275.71 billion was put up for sale across all tenors, however a total of N527.83 billion was sold.

This was attributed to the oversubscription on the one-year T-bills, selling double its offer of N256.51 billion.

Analysts at Meristem had projected in an earlier report that it anticipates that stop rates for the offered instruments will remain relatively stable, with a slight likelihood of further moderation in the yield of the 364-day tenor.

“This expectation is supported by the significantly reduced issuance size of N275.71 billion, a 52.73 percent decrease compared to the N583.26 billion offered at the previous auction,” it said.

Last month, the Cardoso led Monetary Policy Committee jacked up the interest rate for the sixth time this year by 25 basis points to 27.50 percent to combat rising inflation, however this increase hasn’t led to an equal increase in the yields as it had already peaked before the hike.

At the recent OMO auctions held on Friday, December 6, and Monday, December 9, there were no sales except for instruments on the long end of the curve on Friday, while Monday’s auction saw the long-end rate hold steady at 23.98percent.

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“Based on this, we anticipate that the DMO will maintain stop rates below 23 percent at the next auction to manage borrowing costs effectively. However, system liquidity presents a mixed picture. Although liquidity was last week, it turned negative on Monday, potentially exerting slight upward pressure on rates,”

“Nonetheless, we expect rates to hover around current levels with a moderate downward bias as the DMO navigates cost considerations and liquidity dynamics,” it said.

System liquidity turned negative this week, opened N1,265.94 trillion short on Wednesday.

The 182-days bill was also oversubscribed to the tune of N10.61 billion and got only N7.03 billion allotment.

The shorter treasury bills saw minimal interest by investors. Only N8.80 billion of the N10.84 billion 91-day bill was sold.

Yields on the 182-day and 91-day bills remained the same for the fifth consecutive auction at 20.39 percent and 18.86 percent respectively.