CBN Raises Treasury Bill Rate On High Demand

The Central Bank of Nigeria has raised the stop rate on its benchmark 364-day Treasury Bill to 17.59 per cent, even as investors flooded the latest auction with a staggering N4.4 trillion in bids.

The development highlights the apex bank’s continued preference for tight monetary conditions, despite strong investor appetite for government securities.

Investors submitted a combined N4.4 trillion for the three Treasury Bill tenors offered, against a total offer of N700 billion, during the auction held two days ago.

The strongest demand was recorded on the 364-day bill, which attracted N4.19 trillion in subscriptions for the N500 billion on offer.

Rather than lower the yield in response to the heavy demand, the CBN increased the stop rate on the one-year instrument by 24 basis points, from 17.35 per cent at the previous auction to 17.59 per cent.

The move marked a reversal from the July 29 auction, when the apex bank had reduced the stop rate on the 364-day bill by 31 basis points, despite subscriptions reaching almost seven times the amount offered.

At Wednesday’s auction, the CBN ultimately allotted N1.26 trillion worth of the 364-day Treasury Bill—well above the N500 billion initially advertised.

The shorter-dated instruments, however, recorded significantly lower demand.

The 182-day Treasury Bill attracted N63.97 billion in subscriptions against N100 billion offered, with N47.48 billion allotted. Its stop rate was retained at 16.50 per cent.

Similarly, the 91-day bill received N162.21 billion in bids for N100 billion on offer, while N148.57 billion was eventually allotted. The stop rate remained unchanged at 16.30 per cent.

The auction therefore produced a striking divergence across the three maturities. While rates on the 91-day and 182-day instruments remained unchanged, the CBN increased the yield on the benchmark one-year bill.

The huge demand for the 364-day, according to analysts, is an indication  that investors remain keen to lock in relatively attractive yields on government securities amid elevated interest rates.

The CBN’s decision to raise the clearing rate despite the substantial oversubscription, however, shows that investor demand is only one of several factors influencing the pricing of government borrowing.

The move also has wider implications for the fixed-income market. Higher Treasury Bill yields can influence the pricing of other short-term financial instruments and potentially affect the cost of funds across the economy.