Investors submitted N3.63 trillion in bids for Nigeria’s one-year Treasury bills at the latest auction, more than seven times the N500 billion placed on offer as demand for longer-dated government securities strengthened. The 364-day instrument dominated the Treasury bills auction conducted on August 26, accounting for almost 96 percent of the N3.79 trillion submitted across [...]
Investors submitted N3.63 trillion in bids for Nigeria’s one-year Treasury bills at the latest auction, more than seven times the N500 billion placed on offer as demand for longer-dated government securities strengthened.
The 364-day instrument dominated the Treasury bills auction conducted on August 26, accounting for almost 96 percent of the N3.79 trillion submitted across the three maturities.
Despite the volume of money seeking the instrument, the stop rate declined to 17.15 percent from 17.59 percent at the preceding auction, a reduction of 44 basis points.
The outcome allowed the government to raise more than initially planned while paying a lower rate on the one-year instrument.
A total of N638.19 billion was allotted to successful bidders for the 364-day bill, N138.19 billion above the original N500 billion offer.
The size of subscriptions meant that only about 17.6 percent of the N3.63 trillion investors were prepared to commit to the instrument was eventually accepted.
Demand was substantially different at the shorter end of the market.
Investors submitted N103.32 billion for the 91-day Treasury bill against the N100 billion offered. The government allotted N89.10 billion and maintained the stop rate at 16.30 percent.
The 182-day instrument attracted even less interest, with subscriptions of N52.93 billion falling well below the N100 billion offered.
Only N35.59 billion was allotted on the six-month bill, while its stop rate remained unchanged at 16.50 percent.
Across the three maturities, the government offered N700 billion but received approximately N3.79 trillion in subscriptions.
Total allotment eventually reached N762.89 billion, meaning the government raised about N62.89 billion more than originally targeted.
The sharp concentration of bids in the 364-day instrument suggests investors are increasingly willing to lock funds into longer maturities at current rates rather than depend on reinvesting short-term bills in an environment where yields could move lower.
The difference between demand for the one-year and six-month instruments was particularly pronounced. While the 364-day offer attracted more than seven times the amount available, subscriptions for the 182-day bill covered only slightly more than half of the amount offered.
For the Federal Government, the auction provided an opportunity to secure additional funding without offering a higher rate to attract investors.
Strong competition for available securities can give the government greater leverage at auctions because bids demanding higher returns can be rejected when sufficient funds are available at lower rates.
The 44-basis-point decline in the one-year stop rate could therefore become significant if the trend extends to subsequent auctions, particularly given the size of the government’s domestic borrowing requirements.
Lower rates on newly issued securities would gradually reduce the cost of raising funds in the domestic market, although the effect on overall debt-servicing expenditure would depend on the volume and maturity of securities issued.
The auction occurred against a backdrop of substantial liquidity in Nigeria’s financial system and continued investor interest in fixed-income assets.
Secondary-market Treasury bill yields had moved higher ahead of the auction, with the average benchmark yield reaching 19.10 percent on August 24 compared with 18.17 percent on August 12.
The 12-month secondary-market yield stood at 20.34 percent ahead of the auction, considerably above the 17.15 percent stop rate recorded at the primary auction.
Investor demand was also evident beyond Treasury bills.
An Open Market Operations auction conducted during the same period attracted N4.26 trillion in subscriptions against N1 trillion initially offered, with N2.80 trillion eventually allotted.
Combined demand for Treasury bills and OMO securities therefore exceeded N8 trillion during the week, highlighting the amount of liquidity seeking naira-denominated fixed-income instruments.
For investors, attention will now turn to whether Treasury bill rates continue declining as liquidity remains strong.
For the government, sustained demand at lower rates could provide an opportunity to gradually reduce domestic borrowing costs, particularly if investors continue competing heavily for longer-dated securities.
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