The Central Bank of Nigeria (CBN) on Thursday offered a total of N450 billion in treasury bills for short and long term tenors, while investors rush for the longer term treasury bills with higher yields.
Activities in the treasury bills market recently, reveal that investors are opting for higher yielding on the one-year debt.
Johnson Chukwu, managing director, Cowry Asset Management limited explained to BusinessDay that investors are locking in on longer tenor instrument because they expect the interest rate will drop in the future.
Chukwu said the investors take reappraisal risk, locking in on longer term debt and enjoying the benefit. This shows the investors economic outlook that rates will change.
A breakdown of the offer shows that N350 billion of the 266-day tenor with a coupon of 14.4 percent was offered at 16.1 percent yield. The offer which matures on October 25, 2018 was oversubscribed by N21.04 billion.
Also, the apex Bank issued N100 billion of the 98-day tenor bill, which was undersubscribed by N500 million. The offer attracts 12.6 percent coupon but was offered at a yield of 13.04. It will mature on October 5, 2018.
The CBN has maintained the use of Open Market Operation (OMO) instrument to tighten liquidity in the market to attract foreign investors. OMO is the buying and selling of government securities in the open market in order to expand or contract the amount of money in the banking system.
The CBN raised a total of N252.88 billion naira ($827 mln) at the treasury bill auction, as investors piled demand into the higher yielding one-year debt, traders told Reuters. Total subscription stood at N355.2 billion.
However, the money market inter-bank rates have maintained downward trend since the week. The overnight rate which stood at 5.58 percent on Monday dropped further to 4.67 percent on Thursday. Also the Open Buy Back went down to 3.83 percent yesterday from 4.83 percent, data from FMDQ show.
Godwin Emefiele, governor of CBN noted at the November Monetary Policy Committee (MPC) meeting that money market interest rates oscillated in tandem with the level of liquidity in the banking system as the average inter-bank call rate, which opened at 12.00 percent on October 3, 2017, closed at 5.38 percent on November 16, 2017.
The OBB rates opened at 10.41 per cent and closed lower at 6.02 percent in the same period.
However, the average inter-bank call and OBB rates for the period stood at 10.94 and 10.15 percent, respectively.
The CBN has kept the benchmark interest rate at 14 percent since July 2016. “We see monetary policy easing on the back of softer inflation, particularly in Kenya, Ghana and Nigeria”, Yvonne Mhango, Africa economist, Renaissance Capital said.