The Central Bank of Nigeria (CBN) rejected 71% of offers and slashed spot rates on Treasury bills during the primary market auction (PMA), as investors bet heavily on naira assets.
The auction, which was organized by the debt office, saw investors place big bets on the Nigerian Treasury bill due to the elevated yield on naira assets, according to the auction data. Investors looking to invest in one-year Treasury bills were disappointed when the authority sold less than the amount available at the primary market auction last week.
In addition, the primary market spot rate price was adjusted as a result of the Debt Management Office’s (DMO) initiatives to minimize debt servicing costs. The latest data from DMO on total debt showed that Treasury bills accounted for 17% of the entire domestic borrowing, while FGN contributed 78.6%. In its market update, AIICO Capital Limited said before Wednesday’s primary auction, the Treasury bills market was mixed.
However, after the auction, the market trended bullish, with significant unmet bids at the auction seeking several mid- and long-dated papers in the secondary market. The DMO, on behalf of the Central Bank of Nigeria (CBN), held the Treasury Bills (T-Bills) Primary Market Auction (PMA) last week.
At the auction, Nigerian Treasury bill worth N409.98 billion was offered to investors across standing maturities, split as N60.69 billion, N66.25 billion and NGN283.04 billion across the 91-day, 182-day, and 364-day for refinancing.
The auction results showed strong investor interest in the 1-year paper, with about 88.57% subscription on the 364-Day paper. In the end, the DMO allotted ₦291.03 billion, despite offering ₦409.98 billion, causing investors to fill lost bids at the secondary market.
Total subscription printed at about ₦1.03 trillion, of which 71% was rejected by the authority as it seeks to cutback supply. The stop rates for the 91-Day declined by 10 basis points to 18.20%. At the mid belly, the spot rate on 182-Day also dell by 10 basis points to 19.20%.
One year bills was priced lower again at 20.90%, down by 99 basis points from the previous auction. At the previous auction, the CBN offered N216.09 billion across three instruments, marking a reduction from the N277.96 billion offered in the previous auction.
Strong system liquidity, which stood at N469.99 billion, fueled substantial investor demand, with total subscriptions reaching 2.25x the offered amount, a significant increase from the 1.35x recorded at the prior auction, Meristem Securities said in a note.
In nominal terms, total subscriptions surged to N486.87 billion, up from N373.95 billion at the previous auction. Analysts said the 364-day instrument is attracting the lion’s share at 88.64% of total bids. The average bid-to-cover ratio also improved significantly to 2.25x, reflecting both robust liquidity and heightened investor appetite across all three instruments.
Despite this strong demand, the CBN maintained the allotment at the offered amount of N216.09 billion, resulting in an allotment-to-offer ratio of 1.00x. Due to the high demand, yields on the 91-day and 182-day instruments remained constant, while the yield on the 364-day instrument declined by 21 basis points to 21.89%, in line with expectations of easing borrowing costs.
