What CBN’s N161.5bn Treasury Bills Auction Hold For Nigeria’s Economy
The Central Bank of Nigeria (CBN) last Wednesday sold N161.5 billion worth of Nigerian Treasury Bills (NTBs) across various maturities.
Details revealed the apex bank offered N728.17 million which yielded N85.51 billion total subscription in the shortest tenure of 91 days. From this, N5.73 billion was allotted with a stop rate of 16.239 per cent, signalling strong investors’ demand for short-term securities.
In the same vein, the 182-day bills saw an offer of N918.38 million and garnered subscriptions worth N49.65 million, resulting in an allotment of N4.92 billion. Notably, the stop rate for these mid-term bills was set at a flat 17.000 per cent, hinting at market expectations for a stabilised rate environment over the coming months.
Demonstrating the highest demand, the 364-day bills had an offer of N159.85 billion, with a subscription of N1.36 trillion, far exceeding the other tenors. However, the CBN allotted N150.85 billion at a stop rate of 21.1240 per cent, indicating investors’ willingness to hold longer-term bills despite a higher yield and this reflects the risk premium for extended maturities.
It’s sufficient to note that Treasury bills or T-Bills as it is randomly called are short-term debt securities issued by the government to make up for budget deficits and fund projects.
In Nigeria, T-Bills are issued by the Central Bank of Nigeria (CBN) on behalf of the federal government. The investment is backed by the full faith and credit of the Federal Government of Nigeria (FGN); thus it is considered one of the safest forms of investment.
However, the first method pinpointed above is the auctioning of the Treasury Bill through the CBN better called the primary market. Here, investors buy T-Bills directly from the CBN and the minimum investment amount. The second way to trade T-bills is by buying through the secondary market. In this case, investors can only purchase issues through authorized dealers like banks, stockbrokers and discount houses.
Whichever route is taken by investors, what is clear is that the government issues T-Bills at discounted rates and pays the interest upfront while the investment sum is repaid at maturity. For instance, if you were to invest ₦100,000 in T-bills at a discounted rate of 10 per cent, you would be debited ₦90,000 only. This means that your interest is paid to you immediately and your investment subscription is processed. However, at maturity, ₦100,000 is credited to your account at face value, that is, at the actual value of the T-Bills. You purchase T-Bills at a discount and are paid your interest upfront.
Reacting to the success and recent Over-subscription of the just auctioned Nigeria Treasury Bills, Wunmi Bewaji, a financial expert noted that, “the oversubscription of the 161.5 billion Treasury Bills could be a sign of, in the usual mantra, investors’ confidence in the market, which can be true. However, it could also be evidence of excess liquidity in the market.
He stressed that ” a lot of people have money lying fallow in their accounts or money stolen by public officers. Eventually, the treasury bills can also be a way by which the apex bank can mop up excess liquidity from the system, I would not say it’s a sign of investors’ confidence. Rather, I see more evidence in the liquidity.
An Economist, Olatundun Peter, explained the recently auctioned treasury bills from the policy perspectives, saying that the CBN could control the economy through various policy tools, which may include the Expansionary Monetary Policy and Contractionary Monetary Policy. A contractionary policy is a type of monetary policy that is intended to reduce the rate of monetary expansion to fight inflation. Meanwhile, a rise in inflation is considered the primary indicator of an overheated economy, which can be a result of extended periods of economic growth. The policy reduces the money supply in the economy to prevent excessive speculation and unsustainable capital investment.
He was however quick to assert that the success of any policy whatsoever needs to be put side by side, in monetary terms with the challenges it was targeted at addressing. If it’s significant, then it is better for the people, but if otherwise then it has to be interrogated.
He noted that the recent success recorded in the just auctioned Treasury bills could be said to be positive, as a mechanism used in driving the economy by the CBN. However, there is a need for data to substantiate the implication, that it could also mop up certain debt and bring relief to the masses.
“However, in practical terms, the tendency that the Treasury bills could translate to a better life for the people is questionable, although theoretically it is a good plan, there are so many questions about the transparency of the process and until we see those things, we can’t just go on celebrating the success of Treasury bills without asking what mechanism drives it.
Well, it could be a way to also mop up the liquidity, you know that the Central Bank of Nigeria controls the currency through expansionary Monetary Policy and contraction Monetary Policy. We must also not quickly forget that the sales of Treasury bills by the federal government could also mean a way by which the Central Bank of Nigeria (CBN) withdraw some money from circulation, to strengthen the currency, stabilize the economy and mitigate the inflation. He asserted.
If a keen observation into the trend of policy making and its effect in the current administration is something to buy, starting from the policy decision that instantly triggered a 200 per cent increase in the pump price of petrol a strategic commodity that influences pricing and cost in other sectors of the economy. Another key policy pronouncement of administration is the foreign exchange rates unification, by which forces of demand and supply determine the rates, with direct consequences, especially on the prices of imported goods.
It is also of significance note to underscore that, Nigeria’s annual inflation rate rose to 29.90 per cent in January, from 28.92 per cent in December 2023. According to the National Bureau of Statistics (NBS), the January headline inflation rate showed an increase of 0.98 per cent points when compared to the December 2023 headline inflation rate.
The NBS also noted that the food inflation rate in January 2024 quickened to 35.41 per cent on a year-on-year basis, which was 11.10 per cent points higher compared to the rates recorded in January 2023 (24.32 percent), of course the bureau said the rise in food inflation was caused by increases in prices of bread and cereals, potatoes, yam and tubers, oil and fats, fish, meant, fruit, coffee, tea and cocoa. Mostly common man’s recipe, what we could do, is look at events progress, like other policies and efforts of the government we have seen in the last nine months or maybe be Treasury Bills’ success could occasion a deep fresh breath.
Comments are closed.