On Wednesday, November 8, 2023, the Nigerian Treasury Bills (NT-bills) took center stage, capturing the attention of investors as they experienced an extraordinary oversubscription of 182.4%. This surge in interest resulted in the Central Bank of Nigeria (CBN) witnessing subscriptions amounting to a staggering N875.8 billion, significantly surpassing the initially offered N310 billion.
The breakdown of the subscription figures for the three NT-bill categories reveals the extent of investor enthusiasm. The 91-day NT-bills, originally offered at N4.552 billion, witnessed a subscription totaling N16.047 billion. Similarly, the 182-day NT-bills, with an initial offering of N5.429 billion, saw subscriptions soar to N32.960 billion. Meanwhile, the 364-day NT-bills, initially set at N300.162 billion, experienced an overwhelming subscription of N826.787 billion.
Alongside the heightened subscription levels came an upward adjustment in the stop rates across all three tenors. For the 91-day bills, a notable 100 basis points increase elevated the stop rate to 7.000%, up from the previous 5.999%. The 182-day bills experienced an even more substantial surge, with a 200-basis points increase pushing the stop rate to 11% from its previous position at 9%.
The 364-day bills, witnessing the most significant adjustment, saw a substantial 375-basis points increase, elevating the stop rate from 13% to 16.75%.
Despite the overwhelming demand, the total amount raised from the oversubscribed NT-bills stood at N497.2 billion. An interesting observation arises when considering the prevailing economic conditions, particularly the inflation rate, which stood at 26.72% as of September 2023. With a stop rate of 16.75% for the 364-day bills, there emerges a notable negative yield of about 9.97%.
Within financial circles, theories are circulating regarding the potential impact of the attractive returns on NT-bills on Nigeria’s inflation trajectory. Some suggest that the temporary drop in inflation might occur, although the lingering economic challenges might limit the duration of this effect. Adetola Freeman, FBS’ Regional Analyst for Africa, commented on this aspect, stating, “Theoretically, we could see inflation drop temporarily. But given the current state of the economy, the impact may not last beyond a few weeks.”
Freeman also highlighted the alternative scenario where inflation remains unchanged or experiences a fractional increase due to other policies offsetting the anticipated outcome of the T-Bills auction.
The repercussions of the impressive returns in the treasury bills market are poised to reverberate in the Nigerian financial landscape. In particular, the Nigerian Stock Exchange (NGX), which has already witnessed a remarkable year with a 38% year-to-date return, is anticipated to feel the impact.
Last week, the All-Share Index (ASI) surged to an impressive 70,000 points, marking a significant milestone for the NGX. However, with the Federal Government of Nigeria (FGN) offering a record 16.75% yield rate on 1-year tenor bills, there is a discernible shift in the investment landscape. Investors, enticed by the attractive returns on fixed-income instruments, are likely to reallocate some of their funds from stocks to these secure, high-yield options.
As the financial markets continue to respond dynamically to the developments in the NT-bills arena, all eyes are now on the upcoming Monetary Policy Committee (MPC) meeting scheduled for November 25 and 26. Speculation abounds that the Yemi Cardoso-led CBN may opt for further interest rate hikes, adding another layer of complexity to the evolving financial landscape in Nigeria.
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