Nigeria’s one-year Treasury bill auction was oversubscribed to the tune of ₦2.49 trillion, as investors locked in current yields while pricing in a rate cut following the rebasing of the inflation rate.
This led to a decline in its yield at the auction on Wednesday. The yield on the one-year bill dropped to 27.87 percent from 29.21 percent at the last auction.
According to BusinessDay, Matilda Adefalujo, a fixed-income analyst at Meristem, had projected in an earlier report that stop rates for the offered instruments would likely decline as investors priced in rate cuts by the Monetary Policy Committee (MPC) following the rebasing of the Consumer Price Index (CPI).
“Market participants have adopted a cautious approach to trading, pricing in macroeconomic expectations and the potential for future rate cuts. As a result, many may be inclined to lock in funds at current rates or slightly lower, in anticipation of continued reductions in subsequent auctions,” it said.
The MPC meeting, which is held bi-monthly, has been postponed to February 17 and 18, three months after the last meeting in November, as authorities buy time for the rebased inflation figures.
The postponement to February buys the MPC time for the new inflation methodology to kick off in January.
Economic analysts argue that the GDP rebasing will yield an exaggerated GDP growth number, and the CPI rebasing will downplay the inflation rate.
In the new methodology, the proposed base year for inflation computation is 2024. The year was proposed to capture the structural changes driven by the removal of subsidies on FX and PMS.
System liquidity at a deficit of ₦373.66 billion on Monday made it more daunting for healthy participation in the auction: however, inflows from the FAAC allocation, FGN bond coupon payment of ₦281.95 billion, and the Federal Savings Bond coupon payment of ₦0.56 billion are set to bolster liquidity and sustain demand for bills at the auction.
These factors contributed to an oversubscription of more than six-fold the ₦400 billion offered on the one-year T-bills.
The CBN sold only ₦712.47 billion worth of the ₦2.49 trillion subscription it got. This is almost 50 per cent higher than the ₦1.47 trillion subscription seen at the last auction.
Analysts at CardinalStone believe that the CBN is close to activating a rate cut and foresee room for a cumulative downward rate adjustment of between 100 and 200 basis points in the second half of 2025.
In 2025, ₦31.26 trillion in liquidity is expected from Open Market Operations (OMO), Nigerian Treasury Bills (NTB), bond maturities and coupons.
On the debt front, the government is likely to borrow about ₦9.16 trillion from the domestic market.
Considering these factors, CardinalStone projects a moderation in yields later in the year, as the CBN is expected to maintain some low liquidity tolerance to ensure rollovers and a lower borrowing requirement compared to 2024. This assumes the issuance of ₦2.0 trillion in dollar-denominated bonds, leaving a balance of ₦7.16 trillion to be split between NTB and bonds.
“Overall, we expect yields to be mostly stable in H1’25 before moderating in the second half of the year,” it stated.
The 182-day and 91-day treasury bills saw minimal interest by investors. Only ₦17.90 billion of the ₦80 billion 182-day bill was sold. Likewise, only 26.53 billion of the 91-day bill was sold.
Yields on the 182-day and 91-day bills remained the same for the ninth consecutive auction at 20.39 per cent and 18.86 per cent respectively.
