CBN’s Treasury Bills sale exceeds target by 24%, hits N554bn

By Temitope Adebayo

The Central Bank of Nigeria (CBN) sold treasury bills worth about N554 billion in September 2022, according to its primary market auction results.

The amount of Treasury instruments sold exceeds the apex bank target by 24.1 per cent, Afrinvest said in a market note.

At the primary market auction last week, the apex bank raised the spot rate on the 364-day Treasury bill to 12 per cent following 400 basis points interest rate hike that started in May 2022. With a higher inflation rate, market participants have started pricing interest rate hikes across financial instruments.

Monetary tightening started gaining momentum as the inflation rate hits 20.52 per cent in August 2022. However, analysts’ consensus remains that the consumer price index would worsen in the fourth quarter.

On that expectation, the monetary authority has signalled a stronger hawkish tone as the CBN switched to inflation fight measures to achieve a stable price level amidst global disruption in the value chain.

Food inflation in Nigeria has worsened, driven by insecurity and poor agricultural output while the Russia-Ukraine war continues to pose threat to recovery. CBN has maintained a balance in managing liquidity position, encouraging savings following an interest rate hike.

In a market note, investment banking firm, Afrinvest Limited wrote that system liquidity grew 14.7 per cent to N853.3 billion in September as inflows from OMO bill maturities worth ₦35 billion and primary market auction repayments value at N724.3 billion outpaced outflows.

Analysts said regardless, the overnight policy rate and overnight lending rates closed the month at 15.5 per cent and 16.0 per cent, up 7.5 percentage points and 7.3 percentage points month on month.

In September, the apex bank conducted three rounds of Nigerian Treasury bills primary market auction, all of which recorded buy interests, with a bid-to-cover ratio of 1.7x. Overall, the CBN sold N553.7 billion worth of T-bills, 24.1 per cent higher than the prior month.

Stop rates advanced at the T-bills auctions with rates on the 91, 182, and 364-day instruments rising by 250 basis points, 2.5 basis points, and 350 basis points to 6.5 per cent, 7.5 per cent, and 12.0 per cent, respectively.

In the secondary market, traders said the performance was bullish as the average T-bills yield fell 64 basis points to 7.6 per cent in September 2022. This performance was supported by buying interest in the 91-day instrument which recorded a 490bp decline in yield month on month to 6.7 per cent, according to Afrinvest.

“We observed sell-off across 182 and 364-day instruments as yield rose 75 basis points and 224 basis points month on month to 7.3 per cent and 9.0 per cent, respectively.

Afrinvest expects inflows worth N432.3 billion and N100.0 billion from T-bills and OMO bills maturities respectively.

Notwithstanding, analysts projected that funding rates will remain elevated due to the liquidity pressure to be caused by CBN’s mop-ups and higher cash reserve ratio. In the secondary market, analysts said they expect the depressed liquidity level to weigh on performance.