Investor demand for Nigerian Treasury bills fell sharply at the latest auction as higher-yielding Open Market Operations (OMO) securities attracted more liquidity from the fixed-income market.
Total subscriptions for Treasury bills dropped to N1.77 trillion at the October 7 auction from N4.23 trillion recorded at the previous auction, representing a 58 percent decline. (FMDA)
The Debt Management Office (DMO), through the Central Bank of Nigeria (CBN), offered N900 billion across the 91-day, 182-day and 364-day instruments, compared with N500 billion at the previous auction.
Despite weaker demand, the DMO allotted N968.47 billion, about 8 percent above the amount offered.
Investors favour one-year bills
Demand was heavily concentrated on the 364-day Treasury bill, which received N1.68 trillion in subscriptions against N700 billion offered.
The DMO allotted N885 billion on the one-year instrument, representing more than 91 percent of the total amount raised. Its stop rate fell slightly to 15.85 percent from 15.89 percent at the previous auction. (Nairametrics)
Shorter-term instruments recorded significantly weaker demand. The 91-day bill attracted N39.42 billion against N100 billion offered, while the 182-day bill received N46.87 billion against the same N100 billion offer.
Their stop rates remained at 15.50 percent and 15.80 percent respectively. (FMDA)
OMO securities offer higher yields
The weaker Treasury bill demand came as investors continued to find OMO instruments more attractive.
At the October 6 OMO auction, the CBN offered N2 trillion and received N3.51 trillion in subscriptions. The 182-day OMO bill recorded N2.69 trillion in bids, with a stop rate of 16.92 percent.
That was more than one percentage point above the 182-day Treasury bill rate of 15.80 percent, creating an incentive for investors to shift some liquidity towards OMO securities. (FMDA)
The CBN’s OMO operations are part of its efforts to manage liquidity in the financial system following its decision to cut the Monetary Policy Rate by 350 basis points to 23 percent in September.
Treasury yields continue to decline
Average secondary-market Treasury bill yields also fell, dropping to 17.48 percent on October 6 from 18.46 percent on September 23.
The decline reflects the market’s adjustment to the lower interest-rate environment. However, tighter system liquidity and the relatively higher OMO yields have reduced demand for Treasury bills at the primary market. (FMDA)
The direction of Treasury bill yields in the coming weeks is expected to depend largely on liquidity conditions, further OMO issuance by the CBN and signals from the next Monetary Policy Committee meeting.
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Treasury Bill Demand Falls 58% as OMO Yields Stay Higher
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Nigeria’s Treasury bill demand fell 58% to N1.77tn as investors shifted towards higher-yielding OMO securities amid falling market yields.
