The Central Bank of Nigeria (CBN) recently sold N1.58 trillion in Treasury Bills at its latest auction to help manage liquidity in the financial system.
The auction, which took place on February 21st, received a lot of interest from investors, leading the CBN to set stop rates as high as 19%.
The auction included three categories based on tenors: 91-day, 182-day, and 364-day bills.
The CBN offered N11.96 trillion in 91-day bills with a stop rate of 17%, appealing to short-term investors.
The 182-day bills had N10.21 trillion on offer at a 17.50% stop rate, while the 364-day bills had the highest rate of 19% on a N243.32 trillion offer.
Investor interest was strong across all tenors of subscriptions, indicating a high demand for government securities in the current economic environment.
The 91-day bills had a subscription of N368.03 billion, significantly surpassing the offer amount. This resulted in an allotment ratio of 27.7x, with N331 billion allotted.
This means that for every unit offered, nearly 28 units were requested, highlighting the strong demand for short-term government securities.
The 182-day bills received a subscription of N98.69 billion, with an allotment ratio of 6.5x. The 364-day bills saw a substantial subscription of N1.77 trillion, leading to an allotment ratio of 4.9x.
Allocations of N66.2 billion and N1.19 billion were made for the 182-day and 364-day bills, respectively.
During the auction, bids for the 91-day bills ranged from 11.4400% to 21.0000%, for the 182-day bills from 13.0000% to 20.3399%, and for the 364-day bills from 15.0000% to 26.0000%.
These bid ranges demonstrate the varying expectations of investors regarding yield, with some willing to accept lower rates and others aiming for higher returns.
The recent Treasury Bills auction had similar results to the previous one, where N1 trillion was offered but oversubscribed with investors bidding N2.3 trillion. The one-year bill also had a 19% interest rate.
The Central Bank of Nigeria has sold approximately N2.5 trillion in the past two weeks, draining over N2.1 trillion in 364-day auctions, which could result in the apex bank paying around N398 billion in interest.
This strategy by the CBN to reduce liquidity aligns with its monetary policy goal of controlling inflation and stabilizing the currency.
The higher interest rates on Treasury Bills are expected to impact borrowing costs throughout the economy.
The actions by the CBN are crucial given the current global economic uncertainties, and their effects will likely be a topic of conversation in financial circles in the upcoming weeks.
