NEWS
CBN Sells ₦3.46trn In Bills As Investors Chase Higher Returns
CBN Sells ₦3.46trn In Bills As Investors Chase Higher Returns
The CBN and Debt Management Office allotted a combined ₦3.46 trillion in OMO and Treasury bills at their November 3–4 auctions.
Investors submitted ₦5.57 trillion in bids against ₦2.30 trillion offered.
The 364-day Treasury bill attracted ₦1.99 trillion, representing 97.5% of total Treasury-bill subscriptions.
Treasury-bill stop rates remained unchanged, while shorter-dated OMO securities offered yields approaching 18%.
November 06, () – Investors offered ₦5.57 trillion for Nigerian money-market securities this week, more than twice the amount advertised, as the Central Bank of Nigeria (CBN) stepped up efforts to absorb excess liquidity while holding down the government’s short-term borrowing rates.
Auction results released after the November 3 and 4 sales show combined allotments of approximately ₦3.46 trillion, comprising ₦2.95 trillion in Open Market Operations (OMO) bills and ₦509.41 billion in Nigerian Treasury bills.
Demand exceeded the combined ₦2.30 trillion offer by ₦3.27 trillion, although the two auctions served different purposes. The CBN uses OMO securities primarily to manage liquidity, while Treasury bills help the Federal Government raise short-term financing.
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The results also exposed a marked difference in investors’ preferences. Buyers concentrated almost all their Treasury-bill bids on the one-year instrument, while the CBN offered higher returns on OMO bills maturing in roughly four months.
Investors Favour Longer Treasury Bills
Workers operate industrial equipment at a manufacturing facility Source CBN
Channel
At Wednesday’s Treasury-bill auction, investors submitted ₦2.045 trillion in bids against ₦800 billion offered, according to the Financial Markets Dealers Association (FMDA).
The 364-day instrument attracted ₦1.994 trillion, approximately 97.5% of total subscriptions. Investors received ₦461.84 billion in allotments, leaving about ₦1.53 trillion in unsuccessful bids for that maturity.
Demand for shorter securities was considerably weaker. The 91-day and 182-day instruments attracted ₦25.01 billion and ₦25.83 billion, respectively, against offers of ₦100 billion each.
Despite the uneven demand, the Debt Management Office retained stop rates of 15.40%, 15.79% and 15.80% across the three maturities.
Some investors sought higher returns. Bids on the one-year instrument reached 18.18%, although the government declined to accept the more expensive offers.
The November 4 allotment was more than seven times the ₦71.16 billion raised at the October 28 auction. The government therefore secured substantially more financing without increasing its published stop rates.
Investors faced a different pricing environment in the secondary market. FMDA data shows average Treasury-bill yields rose from 17.28% on October 28 to 17.70% by November 3, with three-month and six-month benchmark yields rising by 130 and 122 basis points, respectively.
CBN Pays More To Absorb Excess Liquidity
Central Bank of Nigeria headquarters in Abuja Source Wikimedia Commons
Tuesday’s OMO auction accounted for approximately 85% of the combined allotments.
The CBN offered ₦1.50 trillion across 119-day, 126-day and 133-day securities, received ₦3.52 trillion in bids and eventually allotted ₦2.95 trillion.
Stop rates ranged from 17.67% to 17.77%, exceeding the rates on the latest Treasury-bill auction.
The 126-day OMO bill cleared at 17.71%, approximately 1.92 percentage points above the 182-day Treasury bill’s 15.79% rate. Their different maturities make the comparison imperfect, but the pricing shows how much more the CBN offered on one of its shorter liquidity-management instruments.
OMO securities temporarily absorb money from the financial system when investors purchase them. Their principal and applicable returns subsequently come due, requiring the central bank to account for maturing obligations when deciding how much additional liquidity to withdraw.
Banking-system liquidity had already climbed from ₦7.37 trillion at the previous week’s close to approximately ₦7.58 trillion ahead of Wednesday’s Treasury-bill auction, despite substantial OMO activity.
FMDA also projects ₦13.79 trillion in liquidity inflows during November from maturing securities, government allocations and other sources.
Those expected inflows help explain the scale of the latest auction. They also mean the ₦3.46 trillion combined allotment should not be treated as a permanent net reduction in money circulating through the financial system. Treasury-bill proceeds finance government obligations and can return to the economy through spending.
The CBN faces the continuing task of managing abundant liquidity without allowing funding conditions to become excessively restrictive.
Banks and other investors have considerable incentives to buy securities offering returns above 15%. Such investments can compete with other uses of available funds, although the auction figures alone cannot establish that lending to private businesses has declined.
Nigeria’s next money-market auctions will provide a clearer indication of how aggressively the CBN intends to absorb liquidity and how long the government can maintain its current Treasury-bill pricing as investors seek higher returns.
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