The demand for Nigeria’s one-year treasury notes (T-bills) has steadily declined, even as the Central Bank of Nigeria (CBN) increases yields to attract investors. Market liquidity constraints remain a significant challenge.
The CBN revised its auction timetable and conducted a surprise sale of T-bills on Wednesday, March 19. For the second consecutive time, the apex bank raised rates, increasing yields on one-year treasury bills from 22.52% to 24.90%.
However, demand for the one-year bill dropped sharply to N861 billion, a significant decline compared to N1.5 trillion at the first auction of 2024. This marks the lowest demand level this year, despite the offer size increasing to N800 billion, the highest since February 2024.
At its peak, Nigeria’s T-bill market saw N3.2 trillion in bids for an available supply of just N670 billion.
Experts Blame Liquidity Scarcity for Low Demand
Tajudeen Ibrahim, Head of Research at Chapel Hill Denham, attributed the decline in demand to liquidity constraints in the financial system. He noted that the surprise auction aimed to offset the N800 billion shortfall in the CBN’s first-quarter T-bills calendar.
“Domestic demand is largely dictated by system liquidity. On the international front, foreign portfolio investors (FPIs) primarily engage in OMO bills, making it a better gauge of their appetite,” Ibrahim explained.
He further emphasized that the one-year bill’s 24% yield now offers positive real returns, making it an attractive carry trade opportunity for foreign investors, particularly as global benchmark interest rates remain steady.
Similarly, fixed-income dealer Matilda Adefalujo cited tight liquidity as the main reason for the drop in demand.
“The additional auction was introduced to frontload borrowing before a potential rate cut in May, while also signaling that Nigeria’s T-bills remain attractive with strong yields,” she stated.
Liquidity Challenges, Naira Volatility, and Global Uncertainty
Earlier this year, major foreign banks expressed strong confidence in Nigeria’s T-bill market, encouraged by the Tinubu administration’s economic reforms.
J.P. Morgan reaffirmed this in its Emerging Market Frontier Local Markets Compass report, stating that it remains bullish on Nigeria’s T-bills.
However, the volatility of the naira poses an ongoing challenge.
9am News Nigeria recalls that the naira was one of the best-performing currencies at the start of 2024, holding steady around N1,500/$ for the first two months. However, due to renewed pressure in the FX market, the naira has since depreciated, falling from N1,502/$ to N1,580/$ as of Wednesday, March 19.
This currency instability has dampened investor interest in T-bills. Additionally, rising global trade tensions have pushed many investors toward safer domestic assets, reducing demand for Nigeria’s debt instruments.
As the CBN continues efforts to stabilize liquidity and support the naira, the coming weeks will determine whether T-bill demand rebounds.
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