Lagos, Nigeria – The yield on Nigeria’s one-year treasury bills (T-bills) surged to 26.02% during the primary auction held on Wednesday, marking a significant increase from 24.77% and reaching its highest level since August. This rise reflects the Central Bank of Nigeria’s (CBN) ongoing strategy of aggressive monetary tightening.
In this auction, the CBN rolled over N374.67 billion in maturing T-bills, despite attracting subscriptions totaling N489.93 billion. Analysts at Meristem had anticipated this yield increase due to the larger auction size. They noted, “This higher borrowing requirement, particularly concentrated in the 364-day instrument, could spur the CBN to offer a higher premium.”
The auction’s N374.67 billion borrowing level is significantly higher than the previous auction’s N81.09 billion, representing the highest borrowing level since August 2024. Recent auctions showed robust demand for the one-year bills, with total subscription levels in the last three auctions at N81.09 billion, N273.28 billion, and N304.27 billion.
The system’s net liquidity position stood at negative N427.27 billion as of Wednesday, contributing to upward pressure on yields. Analysts suggest that tight liquidity conditions could lead investors to demand higher rates as compensation.
Shorter-dated instruments also saw strong interest, with the 91-day bill oversubscribed by 28.2% against the N13.14 billion offered. However, only the amount offered was sold. The 182-day bill attracted N12.58 billion in subscriptions, with the CBN selling N9.35 billion. Yields on both the 182-day and 91-day bills remained unchanged at 19.17% and 17.75%, respectively.
The CBN, led by the Cardoso Monetary Policy Committee, has raised interest rates by 850 basis points to 27.25% from 18.75% since the beginning of the year to combat rising inflation. This has correspondingly increased T-bill yields compared to last year. The money supply in Nigeria has also doubled to 107 trillion naira as of August 2024, prompting the CBN to implement contractionary measures, including mopping up N7.3 trillion through Open Market Operations (OMO) over the past nine months.