CBN Raises N9.27tn via NTBs as Investors Seek Longer Maturities, Higher Returns

Kayode Tokede

As investors seek higher returns and long-time maturities, the Central Bank of Nigeria (CBN) has raised a whooping N9.27 trillion worth of Nigerian Treasury Bills (NTBs) across its auctions between January and August 2024.

NTBs or T-Bills as they are sometimes called are short-term debt securities issued by the government to make up for budget deficits and fund projects. In Nigeria, NTBs are issued by the central bank on behalf of the federal government. NTBs investment is backed by the full faith and credit of the Federal Government of Nigeria (FGN), hence, it is considered one of the safest forms of investment.

The amount raised so far in eight months indicates continuing confidence among investors in the Nigerian government’s debt instruments. 

By tightening its monetary policy through higher interest rates and large NTBs auctions, the CBN aims to curb galloping inflation and stabilise the foreign exchange market, thereby fostering a more balanced economic environment. 

Analysis of the primary market auctions in the eight months under review showed that the CBN offered N4.59 trillion worth of NTBs to the investing public but eventually recorded a total subscription worth N30.04 trillion.

The total sale of N9.27 billion in NTBs in eight months of 2024 underscores a robust appetite for Nigerian sovereign instruments, with a significant over-subscription, especially in the longer tenor, suggesting that investors are looking for higher returns and are willing to engage with longer maturity profiles.

THISDAY gathered that CBN in eight months of 2023 had sold N3.46 trillion worth of NTBs to the investing public as both the offered and total subscription stood at N3.16 trillion and N13.74 trillion, respectively.

THISDAY observed that investors demand for long maturities NTBs continued to grow as its stop rate reached 22.1 per cent in July 2024, the highest so far in 2024.

The variation in stop rates across tenors also offers insight into investor sentiment regarding short-, medium-, and long-term economic outlooks.

While the lower stop rate on the 182-day bill suggests anticipation of stable interest rates, the higher stop rate on the 364-day NTBs could imply a cautious stance towards potential future economic volatilities.

Investors’ diversified demand across the different maturities of NTBs reflects strategic positioning for various investment horizons and signals a healthy trading environment in the Nigerian debt market.

Demonstrating the highest demand in the eight months under review, the 364-day NTBs had an offer of N3.36 trillion, with a total subscription of N28.33 trillion, far exceeding the other tenors.

However, the CBN allotted N8.1 billion at a stop rate of 20.9 per cent as of August 21, 2024 from 8.399 per cent January 2024, indicating investors’ willingness to hold longer-term bills despite a higher yield reflecting the risk premium for extended maturities.

The Chief Executive Officer, Wyoming Capital and Partners, Mr. Tajudeen Olayinka attributed the high yield to the factor of demand and supply, stressing that the government deliberately increased NTB supply to encourage higher stop rate at 12.5 per cent or that some institutional investors held back their bids.

According to him, “The essence is to encourage foreign inflows that could help improve dollar liquidity in the foreign exchange market and cause a moderation in Naira exchange rate until the market attains equilibrium level.

“I have no doubt that this is the most appropriate decision on the part of CBN and the government at this time. There’s a need to improve dollar liquidity that will eventually force domestic interest rates to moderate subsequently. The higher interest rate will likely filter into the equity market to temporarily moderate the bullish sentiments in that market as well.”

 The 182-day NTBs saw an offer of N449.75 billion and garnered total subscriptions worth N664.54 billion, resulting in an allotment of N476.08 billion. Notably, the stop rate for these mid-term bills was a significant increase from 4.22 per cent January 2024 to 19.2 per cent as of August, 2024.

For the shortest tenure of 91 days, the CBN offered N780.62 billion, with the total subscriptions coming in at N1.05 trillion. From this, N682.72 billion was allotted with a stop rate of 18.2 per cent, signalling strong investor demand for short-term securities.

Analysts at United Capital in a report titled, “Balancing Act: Nigeria’s Path to Economic Stability H1-2024 Economic Outlook Report,” stated that the N4.83 trillion from the proceeds of NTBs and Bonds issued in H1 2024 was used to settle the Ways and Means Advances from the CBN.

“Given the fact that the cost of defending the naira and fighting inflation via hawkish stances, the CBN has seen further elevation in its borrowing cost in H1 2024. Following the new administration’s need to stem rising cost of debt, our expectation of rates reaching restrictive levels in H1 2024 seemed to come to fruition.

“In H2 2024, we expect short term rates to gradually retrace lower, weighed by CBN’s elevated cost of capital and improved system liquidity prospects. However, factors like the CBN’s hawkish stance will look to serve as tailwind to keep rates elevated around current levels in Q3-2024, pending the crystallisation of the high base effect on inflation,” the report added. 

Meanwhile, the CBN had announced that it is set re-issue N2.2 trillion worth of maturing NTBs in the fourth quarter of 2024.

The total re-issuance for the quarter includes N158.8 billion in 91-day bills, N109.6 billion in 182-day bills, and N1.9 trillion in 364-day bills, amounting to a total of approximately N2.2 trillion.

Starting with the auctions scheduled for September 4-5, 2024, a total of N233.3 billion will be issued across 91-day, 182-day, and 364-day maturities.

Following the initial auction, the CBN has slated another NTB issuance for September 11-12, 2024, where a total of N161.9 billion will be re-issued.

Later in the month, on September 25-26, 2024, the CBN will conduct another issuance of N227.5 billion in NTBs, with the 364-day bills commanding the largest share of the issuance.

As the quarter progresses, the auction scheduled for October 9-10, 2024, will see the CBN re-issue NTBs worth N81.9 billion. Although this issuance is relatively smaller compared to others in the quarter, it still plays a crucial role in maintaining liquidity in the financial markets.

On October 23-24, 2024, the re-issuance program will gain momentum with a more significant auction totaling N374.7 billion across 91-day, 182-day, and 364-day maturities.

Another re-issuance of the quarter is scheduled for November 6-7, 2024, where the CBN will issue NTBs totaling N513.4 billion. This auction represents the second largest single re-issuance of the quarter and is expected to draw considerable interest from investors seeking secure and high-yielding investments.

The final auction for the quarter, scheduled for November 20-21, 2024, will close out the re-issuance program with an issuance of N610.8 billion. This closing issuance will ensure that the financial system remains liquid as the quarter comes to an end, while also providing the government with the necessary funds to meet its short-term obligations.

The re-issuance of NTBs is a strategic tool used by the CBN to manage liquidity in the financial system, control inflation, and stabilize the naira.

By rolling over maturing bills, the CBN aims to mitigate the impact of maturing obligations on government finances while providing investors with a relatively safe investment option.

Data from the apex bank reveals that the apex bank has sold Treasury Bills worth N8.4 trillion in the first half of the year for tenors ranging from 91-days, 182-days and 364-day bills.

The stop rate, which is the interest rates accepted from the bids on offer, ranged from as low as 2.44 per cent for some 91-day bills to as high as 21.49 per cent for 364-day bills within the period under review.