Strong demand for 1-year T-bills as rates hold across tenors

Strong demand for longer-dated Nigerian Treasury bills dominated the Central Bank of Nigeria’s (CBN) primary market auction on Wednesday, even as yields on the one-year paper remained unchanged at 19.33 percent.

The 364-day bill drew N2.12 trillion in subscriptions against an offer of N550 billion. CBN allotted N753.45 billion, reinforcing the strong preference for longer-dated government securities.

“Investor demand remained concentrated on the 364-day bill as market participants continued to favour longer-tenor instruments for attractive risk-free returns,” Ayodeji Ebo, managing director of Optimus by Afrinvest said.

At the short end, demand was weaker. The 91-day bill was undersubscribed at N72.73 billion compared to the N100 billion on offer, with N64.48 billion allotted.

The 182-day bill attracted N172.08 billion in bids against N100 billion offered, with N76.24 billion allotted.

Stop rates were unchanged at 15.95 percent for the 91-day bill, 16.19 percent for the 182-day bill, and 16.20 percent for the 364-day bill, pointing to a stable yield environment.

“With stop rates unchanged across all tenors, the auction suggests yield stability in the Treasury bills market,” Ebo said.

The softer demand at the short end reflects a more selective approach by investors despite stable rates. “The softer demand on the 91-day bill points to continued selectivity at the short end of the curve,” he added.

The auction outcome was broadly in line with expectations, supported by strong system liquidity. Meristem had noted ahead of the sale that the 364-day bill would remain the market’s anchor, a view reflected in the subscription pattern.

System liquidity was estimated at N7.09 trillion in early April, a level that typically supports strong demand at auctions.

Inflation rose to 15.38 percent in March from 15.06 percent in February, while one-year NTB yields in the secondary market have been hovering around 16.00 to 16.20 percent.

Meristem said the uptick in inflation, alongside geopolitical tensions in the Middle East, could lead to a repricing of risk, with investors likely to demand higher yields, particularly on longer-dated instruments.

CSL Stockbrokers also noted ahead of the auction that sentiment would remain positive in the near term, with investors favouring short-dated securities amid global risk-off conditions and capital flow uncertainties.

For now, strong liquidity is keeping demand firm and rates stable, but rising inflation and global uncertainties could begin to push yields higher, especially on longer-dated bills in the coming auctions.