The Central Bank of Nigeria (CBN), acting on behalf of the Debt Management Office (DMO), recorded a staggering 283.42% oversubscription for the 364-day T-bills, worth an impressive N1.47 trillion. This unprecedented demand underscores growing confidence among investors in the high-yield potential of these securities amidst rising interest rates and economic volatility. Investor’s enthusiasm for Nigerian government securities reached a remarkable high during the Treasury Bills (T-bills) auction conducted on January 8, 2025.
Overview of the T-Bills Auction
CBN’s auction offered Treasury Bills with tenors of 91-days, 182-days, and 364 days:
- 91-day bills: Offered N50 billion, subscriptions totaled N22.94 billion with a stop-out rate of 18%.
- 182-day bills: Offered N80 billion, subscriptions reached N20.81 billion with a stop-out rate of 18.5%.
- 364-day bills: Offered N385 billion, but received a monumental subscription of N1.47 trillion, with a stop-out rate of 22.62%.
The maturity dates for the bills were set as April 10, 2025 (91-day), July 10, 2025 (182-day), and January 8, 2026 (364-day). These T-bills are to be allocated on January 9, 2025, with final allocations of N21.30 billion, N20.48 billion, and N473.20 billion, respectively.
Factors Behind Investors’ Strong Interest in Nigeria’s 364-Day Treasury Bills:
High-Yield Attraction in a Rising Interest Rate Environment
The sharp increase in the stop-out rate to 22.62% for 364-day treasury bills reflects an attractive return on investment for investors seeking to hedge against inflation. With Nigeria’s Monetary Policy Rate (MPR) recently raised to 27.50% to combat inflation (currently at 33.88%), the 364-day treasury bills have become an appealing option due to their higher yields compared to shorter-term bills like the 91-days, 182-days treasury bills .
Inflation Hedging and Wealth Preservation
With inflationary pressures eroding real returns, investors are gravitating toward fixed-income securities offering guaranteed returns. The high demand for 364-day bills suggests that investors perceive them as a safe and effective tool to preserve capital while earning competitive returns that outpace inflation.
Economic Uncertainty and Flight to Safety
The oversubscription reflects cautious optimism amid macroeconomic uncertainties in Nigeria. As businesses face challenges due to fluctuating oil prices, forex instability, and policy adjustments, investors are turning to government-backed instruments as a low-risk alternative to volatile equity markets or private-sector bonds.
Anticipation of Continued High Interest Rates
Investor Confidence in Government’s Debt Management Strategy
The robust subscription highlights confidence in the government’s ability to manage its debt obligations effectively. The significant uptake of 364-day T-bills reflects a belief in Nigeria’s economic recovery prospects and stability over the medium term.
Broader Implications for Nigeria’s Economy
The record demand for T-bills indicates that despite prevailing challenges, the Nigerian economy retains strong investor appeal. This aligns with broader global trends where investors prioritize stable returns.
The CBN’s auction raised substantial funds for government financing, which could support budgetary commitments and public sector investments in 2025. However, it also signals tighter liquidity in the banking system, potentially impacting credit availability for businesses.
The surge in foreign investor participation in Nigerian T-bills can provide support for the naira by increasing forex inflows. However, sustained demand for high-yield instruments could heighten the government’s debt servicing obligations in the long term.
