Nigeria’s Treasury Bills market is witnessing a renewed decline in primary-market yields, with the one-year stop rate falling to 15.80 per cent at Wednesday’s auction, even as investor subscriptions significantly exceeded the amount offered by the Debt Management Office (DMO).
The DMO, acting through the Central Bank of Nigeria (CBN), allotted only N71.16 billion against an advertised N800 billion offer at the October 28 auction, signalling a preference for lower financing costs over raising the full amount investors were willing to lend.
Investors submitted N1.908 trillion in bids, representing 2.38 times the advertised offer. However, the authorities accepted only a fraction of the subscriptions, leaving approximately N1.837 trillion unallotted.
The latest auction is the second consecutive session in which the debt office has rejected a substantial proportion of bids. At the October 14 auction, it left approximately 74 per cent of subscriptions unallotted, even as the 364-day stop rate increased by five basis points to 15.90 per cent.
Wednesday’s outcome, however, saw the one-year rate reverse that increase, declining by 10 basis points to 15.80 per cent.
The 364-day instrument accounted for almost the entire rejected subscription, attracting N1.84 trillion in bids against an advertised N600 billion offer. Yet the DMO allotted just N38.38 billion, equivalent to approximately 2.09 per cent of investor demand for the tenor.
Investors had submitted bids at rates ranging from 15.00 per cent to 18.24 per cent, but the auction cleared at 15.80 per cent, suggesting that the authorities were unwilling to accommodate higher yield expectations despite the substantial appetite for the instrument.
The 91-day bill attracted N51.56 billion in subscriptions against N100 billion offered, with N22.33 billion allotted at a stop rate of 15.40 per cent. The 182-day instrument recorded N20.27 billion in bids against the same N100 billion offer, while N10.45 billion was accepted at 15.79 per cent.
The resulting yield structure was relatively flat, with just one basis point separating the 182-day and 364-day instruments, indicating limited additional returns for investors willing to lock in funds for longer periods.
The DMO’s ability to reject a significant volume of subscriptions comes against the backdrop of improved liquidity in the banking system, which stood at N8.59 trillion before Wednesday’s auction, up from N6.94 trillion at the close of the previous week.
The increase was supported largely by N2.13 trillion in Open Market Operations (OMO) maturities, which released additional funds into the financial system and strengthened banks’ capacity to participate in the fixed-income market.
At the October 22 OMO auction, the CBN sold N2.63 trillion in securities across the 138-day and 180-day tenors against an initial offer of N2 trillion. The instruments cleared at 17.63 per cent and 17.14 per cent, respectively.
These rates were considerably higher than the Treasury Bills stop rates recorded on Wednesday, creating a differentiated return environment for institutional investors allocating funds between government securities and CBN liquidity-management instruments.
Meanwhile, the average secondary-market Treasury Bills yield declined to 17.47 per cent on October 27 from 18.21 per cent on October 14, reflecting a broader easing in market yields.
The one-month and six-month benchmark yields stood at 16.68 per cent and 16.63 per cent, respectively, while the 12-month benchmark yield increased to 18.61 per cent.
Wednesday’s outcome also represents a departure from the pattern recorded during much of the third quarter, when the authorities frequently exceeded advertised Treasury Bills offers in response to strong investor demand.
At the October 7 auction, the DMO allotted N968.47 billion against an advertised N900 billion offer, while the 364-day stop rate declined to 15.85 per cent.
The latest one-year rate is also significantly below the 17.59 per cent recorded in August, when investors submitted N4.4 trillion in bids against an advertised N700 billion offer. By September 9, the rate had declined to 16.62 per cent before rising temporarily to 15.90 per cent at the October 14 auction.
The October 28 reduction to 15.80 per cent indicates that the debt office is seeking to preserve the downward adjustment in domestic borrowing costs rather than respond directly to every movement in investor demand.
However, the strategy comes with a trade-off. By allotting just N71.16 billion against the advertised N800 billion, the government raised substantially less than its planned issuance at the auction, potentially leaving a larger financing requirement for subsequent borrowing operations.
Investors face tougher allocation conditions
The latest auction reinforces the importance of pricing discipline for investors participating in Nigeria’s primary Treasury Bills market.
With only about 2.09 per cent of subscriptions accepted on the one-year instrument, institutions offering yields above the DMO’s clearing rate faced a significant risk of receiving no allocation.
The development also highlights the tension between investors seeking attractive returns in a high-interest-rate environment and government efforts to reduce the cost of domestic debt servicing.
Although elevated banking-system liquidity has sustained demand for government securities, the DMO’s latest decision shows that strong subscriptions alone may not compel the authorities to increase borrowing or accept higher interest rates.
The next auctions will indicate whether the debt office intends to maintain its restrictive allotment strategy, particularly if liquidity conditions change or competition from higher-yielding OMO instruments intensifies.
