CBN lure investors to one-year T-bill with yield to match inflation

Nigeria's central bank raised 177.22 billion naira via the sale on Wednesday of a one-year treasury bill but had to offer a yield well in excess of its benchmark interest rate to lure investors in the face of galloping inflation.

The one-year bill yielded 18.54 percent, in line with December's 18.55 percent annual inflation rate but far higher than the central bank's benchmark interest rate of 14 percent.

The auction on Wednesday was the third this year at which the central bank has offered the one-year bill at a yield of above 18 percent. The central bank had previously sold short-term debt at yields below inflation for months.

The sale drew subscriptions of almost four times the amount initially targeted and the issue amount was increased.

December's inflation reading marked the 11th monthly rise in a row and was more than an 11-year high.

As the government increases borrowing to try to spend its way out of the first recession for 25 years in Africa's biggest economy, Nigeria has been issuing bonds at yields below inflation to try to keep a lid on debt costs.

It has been helped by local pension funds that are awash with cash but risk-averse and which can invest more than 80 percent of pension assets in government bonds.

But the lack of a government benchmark that reflects inflation has made it difficult for corporate borrowers to issue debt.

The bank raised a total of 302.4 billion naira at Wednesday's auction, more than the 242 billion naira planned due to strong demand for the one-year debt.

It sold a six-month bill at 17.24 percent to raise 80 billion naira and a three-month note at 13.79 percent to fetch 45.18 billion naira.

The central bank sells treasury bills regularly to raise naira to help the government fund its budget, control the money supply and assist lenders manage their liquidity.