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How investors purchased N19trn treasury bills in 2019

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By Babajide Komolafe

…OMO TBs dominate by 85%

INVESTORS purchased N19 trillion worth of treasury bills (TBs) in 2019, with Open Market Operations (OMO) bills accounting for 85 percent of the purchase.

This, however, represents 25 percent decline, year-on-year, y/y), when compared with N37.9 trillion worth of TBs purchased in 2018.

The amount of TBs purchased also represents 40 percent reduction when compared with the N31.8 trillion TBs demanded by investors in 2019.

Boosting the economic growth

The decline was occasioned by 47 percent, y/y, reduction in amount of TBs offered for sale by the Central Bank of Nigeria (CBN) in 2019 as it reduced the amount of OMO bills issued to mop up liquidity, in an attempt to increase money supply and enhance bank lending with the aim of boosting the economic growth.

The reduction is also due to the decision of the Federal Government, in 2018, to rebalance its debt portfolio away from domestic debt to foreign debt, leading to reduction in the issuance of TBs to borrow from the domestic investors.

Hence, the amount of OMO TBs offered by the apex bank fell by 50 percent, y/y, in 2019 while Nigeria Treasury Bills (NTBs) offered by the CBN fell by 10 percent, y/y, during the year.

Recall that OMO TBs are issued by the CBN mop up excess liquidity in the financial system, while NTBs are issued also by the apex bank to borrow from the public on behalf of the FG.

Financial Vanguard analysis of periodic economic reports by the CBN and weekly results of TB auctions showed that the amount of TBs offered by the CBN fell to N20.17 trillion in 2019 from N34.6 trillion in 2018, representing 47 percent, y/y, decline.

On the other hand investors demand (total public subscription) rose by 0.6 percent, y/y, to N31.83 trillion in 2019 from N31.630 trillion in 2018.

The amount of TBs sold by the apex bank and hence purchased by investors dropped by 25 percent, y/y, to N19.28 trillion in 2019 from N25.69 trillion in 2018.

Consequently, TBs offered by the CBN in 2019 recorded 50 percent under-subscription, up from the 17 percent under-subscription recorded in 2018.

Quarterly analysis of TB auctions in 2019 shows that investors purchased N8.49 trillion bills in the first quarter (Q1’19), as CBN offered N9.08 trillion, while investors demanded for N10.96 trillion. This resulted to 21 percent over-subscription.

In the second quarter (Q2’19), TBs purchased by investors dropped sharply by 70 percent to N2.51 trillion, as the CBN drastically reduced the amount of TBs offered by 77 percent to N2.14 trillion. Investors demand for TBs also fell by 64 percent to N3.92 trillion, resulting to over-subscription of 83 percent.

But the decline in Q2’19, was reversed in Q3’19, as TBs purchased by investors rose by 44 percent to N3.63 trillion, following 108 increase in TBs offered by the CBN, which rose to N4.44 trillion in Q3’19. Investors demand for TBs also rose sharply by 134 percent to N8.38 trillion in Q3’19, resulting to 89 percent over-subscription.

The upward trend persisted in the fourth quarter (Q4’19), when TBs purchased by investors rose by 28 percent to N4.64 trillion, as the apex bank increased TBs offered by two percent to N4.52 trillion in Q4’19. Investors demand for TBs also rose by 2.3 percent to N8.57 trillion in Q4’19, resulting to 90 percent over-subscription.

NTBs purchased in 2019

Total amount of NTBs purchased by investors fell by 10 percent to N2.91 trillion in 2019 from N3.34 trillion in 2018, as the amount offered by the CBN dropped by 10 percent N2.99 trillion in 2019 from N3.34 trillion in 2018.

However, the amount demanded by investors rose by 31 percent to N8.8 trillion in 2019 from N6.71 trillion in 2018.

Consequently NTBs recorded 284 percent over-subscription in 2019, down from the 101 percent over-subscription recorded in 2018.

Quarterly analysis of NTB auctions showed that investors purchased N888 billion worth of NTBs in Q1’19, as the CBN offered N961.5 trillion worth of bills. Investors demand for TBs in Q1’19 stood at N2.72 trillion, resulting to 183 percent oversubscription.

The amount of NTBs purchased by investors nosedived by 50 percent, quarter-on-quarter (q/q), to N446 billion in the second quarter (Q2’19), as the CBN reduced the amount of bills offered by 54 percent, q/q, to N446 billion. Investors demand for NTBs also fell by 54 percent, q/q, to N1.24 trillion in Q2’19, resulting to 178 percent over-subscription.

The amount of NTBs purchased by investors, however, revived by 124 percent, q/q, to N1 trillion in Q3’19, following increase in the amount of bills offered by the apex bank by the same magnitude and amount. In the same vein, investors demand for NTBs in Q3’19, rose by 96 percent, q/q, to N2.44 trillion, resulting to 144 percent over-subscription.

However, the amount of NTBs offered and purchased by investors fell by 42 percent, q/q, to N584 billion in the fourth quarter (Q4’19), even as amount of bills demanded by investors etched down by 0.1 percent, q/q, to N2.41 trillion, resulting to 313 percent oversubscription.

OMO TBs purchased in 2019

Total OMO bills purchased by investors in 2019 fell by 27 per to N16.46 trillion from N22.35 trillion in 2018, as the amount offered by the CBN dropped by 50 percent to N17.18 trillion in 2019 from N34.61 trillion in 2018.

Recall that the CBN in October excluded local investors from purchasing OMO TBs.

This restriction, however, had zero effect on investors’ demand for OMO TBs during the year as total demand merely experienced a marginal drop of 0.1 percent to N23.02 trillion in 2019 from N24.92 trillion in 2018.

Consequently OMO TBs recorded 35 percent over-subscription in 2019, as against 29 percent under-subscription recorded in 2018.

Quarterly analysis of OMO TBs auctioned  in 2019 showed that investors purchased N7.6 trillion worth of bills in Q1’19, as the CBN offered N8.12 trillion, while investors demanded for N8.25 trillion worth of bills.

In Q2’19, the amount OMO bills purchased by investors dropped sharply by 72 percent to N2.17 trillion as the apex bank also reduced the amount offered by 79 percent to N1.69 trillion. The amount of bills demanded by investors also fell  by 68 percent, q/q, to N2.68 trillion, resulting to 59 percent over-subscription.

But in Q3’19, OMO TBs purchased by investors rose 21 percent, q/q, to N2.63 trillion,  as the apex bank increased bills offered by 103 percent, q/q,  to N3.44 trillion. Investors demand also revived by 55 percent, q/q,  to N5.95 trillion in Q3’19 resulting to 73 percent oversubscription.

The amount of OMO bills purchased by investors rose further by 54 percent, q/q,  to N4.1 trillion in Q4’19, as the apex bank also increased amount of bills offered by 15 percent, q/q,  to N3.94 trillion. Investors demand for OMO bills also etched up by 3.6 percent, q/q,  to N6.16 trillion in Q4’19, resulting to 56 percent over-subscription.

Vanguard

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