Decline in Treasury Bill Rates to Persist

The steady decline in interest rates on treasury bills (TBs) offer in the primary market since last month is expected to continue this week when the Central Bank of Nigeria (CBN) roll over N48.6 billion worth of maturing bills.

Last week the apex bank sold N89 billion worth of TBs in the primary market at lower stop rates. Stop rate for the 91-Days bills dropped by 15 basis points (bpts) to 10.75 percent from 10.9 percent in the previous auction held on February 27.

The stop rate on the 182-Days bills also dropped by five bpts to 12.5 percent from 13 percent in the previous auction, while stop rate for the 364-Days bills dropped by 152 bpts to 12.85 percent, the lowest since August last year, from 14.37 percent in the previous auction in February.

The Central Bank of Nigeria head office in Abuja, Financial Vanguard analysis of primary market TB auction since January revealed a two month downward trend in rates.

Between the first auction on January 16 and the auction held last week Wednesday (March 13), stop rate on 91-Days bills dropped by 25 bpts to 10.75 percent last week from 11 percent on January 16. Stop rate on 182-Days bills fell marginally by six bpts to 12.5 percent last week from 13.1 percent on January 16.

The biggest decline was recorded by the stop rate for 364-Days bills which fell by 215 bpts to 12.85 percent last week from 15 percent on January 16.

The above trend is driven by massive over-subscription (excess demand) for TBs fuelled by foreign portfolio investors seeking to take advantage of the high interest rate regime in the nation’s fixed income market.

This is reflected by the 88 percent increase in dollar injection by foreign portfolio investors through the Investors and Exporters (I&E) foreign exchange window, which rose to $3.07 billion in the first two months of the year (January and February) from $1.63 billion in Q4’18.

This massive inflow triggered 532 percent over-subscription in the primary market TBs auction held by the CBN on February 27.

The CBN offered and sold N115 billion worth of TBs while total subscription stood at N727.35 billion. This trend was repeated last week, with the primary market auction recording 575 percent over-subscription.

While the CBN offered and sold N89 billion worth of bills, total subscription (investors demand) stood at N600.52 billion.

Confirming this development, analysts at Lagos based Cowry Asset Management Limited said: “Amid demand pressure from the foreign portfolio investors, we saw stop rates fall across tenor days: 91-day, 182-day and 364-day maturities.”

They projected that the huge demand for TBs will persist this week when the CBN offers maturing TBs worth 48.6 billion, as well as further moderation in stop rates.

“In the new week, CBN will rollover T-bills worth N48.57 billion, viz: 91-day bills worth N3 billion, 182-day bills worth N8.39 billion and 364-day bills worth N37.18 billion.

We expect their stop rates to fall amid buy pressure. Amid the N169.44 billion bills maturing, we expect yields to further moderate given the declining stop rates.”