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Treasury bills rates to rise further as CBN sells N179bn

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By Babajide Komolafe

THE upward trend of interest rates on treasury bills is expected to persist this week as the Central Bank of Nigeria, CBN, seeks to refinance N179 billion worth of maturing bills.

Last week, the apex bank sold N178.7 billion worth of primary market (fresh) TBs in three tenors of 91 Days, 182 Days, and 364 Days.

The 182 Days and 364 Days bills were, however, sold at higher stop rates of 11.79 percent and 13.5 percent respectively from 11.59 percent and 12.9 percent in the previous auction.

CBN, Treasury
The Central Bank of Nigeria head office in Abuja.

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This trend, according to analysts at Lagos based Cowry Assets Management Limited, will persist this week, when the CBN conducts a primary market auction to refinance N179.75 billion worth of maturing TBs.

They said: “In the new week, CBN will refinance T-bills worth N179.75 billion, viz: 91-day bills worth N3.00 billion, 182-day bills worth N8.39 billion and 364-day bills worth N168.36 billion. We expect their stop rates to rise amid increased investors’ demand for higher returns on investment.”

Financial Vanguard analysis showed that stop rates on TBs have been on the upward trend since August with average increase of 178 basis points (bpts). This sharply contradicts the average decline of 296 bpts recorded from January to July.

Analysis showed that stop rate on the 91 Days TBs which dropped by 215 bpts to 9.75 percent in July from 11.9 percent in December 2018, had risen by 184 bpts to 11.59 percent.

Similarly, stop rate on the 182 Days bills which dropped by 290 bpts to 10.6 percent in July from 13.5 percent December, had risen by 1.19 bpts to 11.79 percent last week.

Furthermore, stop rate on the 364 Days bills which dropped by 382 bpts to 11.18 percent in July from 15 percent in December, had risen to 13.5 percent last week.

The upward trend in TB rates is driven by pressure on the CBN to lure back foreign portfolio investors (FPIs) to the treasury bills market and thus revive dollar inflow into the foreign exchange market and forestall the two months decline in the nation’s external reserve.

The need for higher rates to lure FPIs back to the TB market is further reflected in the Foreign Capital Importation data for second quarter of 2019 (Q2’19) released by the National Bureau of Statistics, NBS, last week. The data showed that FPI which account for 74 percent of foreign capital imported into the country, dropped by 40 percent, quarter-on-quarter, to $4.29 billion in Q2’19 from $7.1 billion in Q1’19.

Further analysis showed that foreign investments in money market instruments (TBs), which accounts for over 80 percent of total FPIs fell by 41 percent, q-o-q, to $3.5 billion in Q2’19 from $5.9 billion in Q1’19.

CBN to sustain liquidity mop

Meanwhile, the CBN is expected to sustain its liquidity mop up operations in response to inflow of N356.5 billion from maturing secondary market (Open Market Operations, OMO) bills.

Last week, the interbank money market enjoyed inflow of N347 billion from matured OMO bills. The CBN, however, auctioned and sold OMO bills to mop up N527 billion, a development which caused average short term cost of funds to rise by 2,011 bpts.

Data from FMDQ showed that interest rate on Collateralised (Open Buy Back, OBB) lending rose by 1,922 bpts to 22.43 percent last week from 3.21 percent the previous week. Similarly, interest rate on Overnight lending rose by 2,100 bpts to 24.71 percent last week from 3.86 percent the previous week.

Analysts project that this level of cost of funds will persist this week due to continued liquidity mop by the apex bank.

According to analysts at Lagos based Afrinvest Limited, “Given large inflows worth N356.5bn from OMO maturities expected next week, we believe the CBN will continue to keep rates in check through regular auctions.”

Naira appreciates as external reserves sheds $300m

On the foreign exchange scene, the naira maintained its upward trend against the dollar in the parallel market and in the Investors and Exporters (I&E) window.

Financial Vanguard analysis showed that the naira appreciated by 80 kobo in the parallel market as the market exchange rate dropped to N358 per dollar last week from N358.8 per dollar the previous week.

In the I&E window, the naira appreciated marginally by four kobo as the indicative exchange rate for the window dropped further to N362.04 per dollar last week from N362.08 per dollar the previous week.

The CBN on its part sustained its weekly intervention in the foreign exchange market, as it injected $210 million in the interbank foreign exchange market, allocating $100 million to the wholesale segment, $55 million to the SME segment and $55 million for invisibles.

But the nation’s external reserves dropped further last week to $42.844 billion on Thursday, September 12, from $43.144 billion on Thursday, September 4, last week.


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