Nigeria’s one-year T-bill demand is sharply declining, despite yield increases by the CBN to 24.90%. The recent auction saw demand fall to N861 billion, the lowest this year, attributed to liquidity issues. Investor sentiment has shifted as the naira’s stability is in question, with reduced foreign participation impacting T-bill sales.
The demand for one-year treasury bills (T-bills) in Nigeria has been experiencing a notable decline, despite the Central Bank of Nigeria’s (CBN) recent attempts to raise yields. In a surprising adjustment, the CBN scheduled an additional sale on Wednesday, resulting in an increase in yields from 22.52 percent to 24.90 percent. This increase marks the second consecutive rise; however, demand plummeted to N861 billion, the lowest this year, contrasting sharply with N1.5 trillion at the first auction of 2024.
Market observers attribute this decrease in demand primarily to liquidity constraints affecting the system. Tajudeen Ibrahim, head of research at Chapel Hill Denham, stated that domestic demand is highly influenced by system liquidity, while foreign portfolio investors (FPIs) tend to favor OMO bills over T-bills. He indicated that the CBN’s introduction of the additional auction was a response to an N800 billion shortfall in the initial first-quarter T-bills calendar.
Matilda Adefalujo, a fixed-income trader, supported these views, suggesting that the CBN’s decision aimed to signal the attractiveness of NT-bills given their strong yields and to pre-emptively address potential future rate cuts. Earlier in the year, foreign banks had a positive outlook on Nigeria’s T-bills; however, the naira’s volatility has raised concerns.
According to J.P. Morgan’s report, while they continue to support holdings in Nigerian T-bills, the trade’s focus has shifted more towards the naira’s position. The naira, after starting strong at around N1,500, faced depreciation pressures, slipping to N1,580 recently, which has coincided with reduced T-bill demand. Additionally, global tariff tensions have led investors to prefer safer assets, contributing further to declining demand.
It has been suggested that FPIs are exiting the T-bills market due to rising exchange rates, prompting the CBN to raise OMO bill yields to mitigate capital flight. Access Bank’s Kingskin Okojie remarked on the direct correlation between T-bill rates and FX volatility, indicating that increased yields could help stabilize FPI investments in Nigeria, which seek competitive returns.
Despite the CBN’s efforts, only N436.72 billion in one-year T-bills were sold in the latest auction, totaling N504 billion across all tenors. This brings the total T-bill sales for 2024 to N4.7 trillion, though interest remained marginal for 91-day and 182-day T-bills, with yields rising to 20.39 percent and 18.86 percent, respectively.
In summary, Nigeria’s T-bill market is currently facing significant challenges characterized by declining demand amid liquidity constraints. Despite increased yields, both domestic and foreign investor participation has waned, mainly due to concerns regarding the naira’s stability and broader economic factors. The CBN’s recent auction aimed to stimulate demand but yielded limited success, highlighting the ongoing complexities in attracting investment in this tightening market. Continued monitoring of liquidity conditions and investor sentiment will be crucial going forward.
Original Source: businessday.ng
