•As naira appreciates by 9.3% w/w

By Chinwendu Obienyi

Investors demand for treasury bills has reached a record high as the total subscriptions have risen to N2.62 trillion, with particular interest observed in the longer-dated bills, accounting for N2.48 trillion.

According to data obtained from the Central Bank of Nigeria (CBN)’s website, instruments worth N161.33 billion, comprising N17.61 billion of the 91-day, N1.56 billion of the 182-day, and N142.16 billion of the 364-day bills were offered by the apex bank during the primary auction at the Nigerian Treasury bills secondary market.

The bullish sentiments persisted in the Nigerian Treasury bills secondary market, as the average yield across all instruments contracted by 6 basis points (bps) to 17.9 per cent with analysts at Cordros Research attributing the performance to higher demand as investors looked to cover for lost bids at the NTB PMA on Wednesday (27 March, 2024).

Across the market segments, the average yield dipped by 4bps and 6bps to 17.7 per cent and 18.5 per cent in the NTB and OMO secondary markets, respectively.

Ultimately, the CBN over-allotted bills worth N1.19 trillion, including N29.83 billion of the 91-day, N25.56 billion of the 182-day, and N1.13 trillion of the 364-day bills, at respective stop rates of 16.24 per cent, 17.00 per cent, and 21.12 per cent, all unchanged from previous levels.

Reacting to this development, money market operators noted that the successful auction and the heightened interest in the NTBs signify a keen investor appetite for higher interest rates, providing a solid anchor for the fiscal stability of Nigeria.

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They noted that the CBN’s decision to tighten monetary policy by increasing interest rates and auctioning larger volumes of treasury bills is a strategic move to address several macroeconomic concerns.

“Higher interest rates are typically employed to control inflation; they make borrowing more expensive, thereby tempering spending and investment, which, in theory, should reduce the upward pressure on prices.

Additionally, these higher rates tend to attract foreign investors seeking better yields, leading to an inflow of foreign currency, which can help stabilise and potentially strengthen the Naira. Following our expectation of a possible lower liquidity in the system next week, we envisage moderation in demand for instruments in the T-bills secondary market and, thus, increased yields”, they said.

Meanwhile, the naira further appreciated by 9.3 per cent to N1,309.39/$1 at the Nigerian Autonomous Foreign Exchange Market (NAFEM), with total turnover (as of 27 March 2024) declining by 47.8 per cent week-to-date (WTD) to $984.84 million, as trades were consummated within the N1,200.00 – N1,486.00/$ band. Notably, the CBN sold another round of $10,000.00 to each of the eligible BDCs at N1,251.00/$1, with an allowable spread capped at 1.5 per cent.

However, Nigeria’s FX reserves weakened further, as the gross reserves level fell by $311.91 million to $33.95 billion.

In the Forwards market, the naira rates recorded for the 1-month (+9.5 per cent to N1,334.58/$1), 3-month (+9.1 per cent to N1,375.00/$1), 6-month (+8.7 per cent to N1,438.11/$1) and 1-year (+10.7 per cent to N1,541.08/$1) contracts increased.

Speaking to Daily Sun, the Head, Research, FSL Securities, Victor Chiazor, said that the CBN’s continuous efforts in the FX market to stabilise the naira, reflected in the sustained sale of US dollars to eligible BDCs and maintenance of high yields on naira-denominated assets to support FPI inflows.

According to him, “Whilst CBN’s intervention in the FX market is poised to remain frail in the near term given its low FX reserves, we expect the naira to remain stable in the short term, supported by tighter monetary policy conditions and improved FX liquidity”.