Nigeria’s Debt Management Office (DMO) has rejected N1.84 trillion in investor bids for one-year Treasury Bills, signaling a push to lower borrowing costs. The move comes as the country’s primary-market yields continue to decline, with the one-year stop rate falling to 15.80% at the latest auction.
DMO prioritizes lower borrowing costs over investor demand
At the October 28 auction, the DMO, acting through the Central Bank of Nigeria (CBN), allotted only N71.16 billion against an advertised N800 billion offer. This decision left approximately N1.837 trillion in investor bids unallotted, despite subscriptions exceeding the advertised offer by 2.38 times.
The 364-day instrument, which attracted N1.84 trillion in bids, saw the DMO allot just N38.38 billion, equivalent to 2.09% of investor demand. This indicates the authorities’ reluctance to accommodate higher yield expectations, even with substantial investor appetite.
Liquidity boost and yield trends
The DMO’s ability to reject such a significant volume of subscriptions is backed by improved liquidity in the banking system, which stood at N8.59 trillion before the auction. This increase was largely supported by N2.13 trillion in Open Market Operations (OMO) maturities, strengthening banks’ capacity to participate in the fixed-income market.
The October 22 OMO auction saw the CBN sell N2.63 trillion in securities across the 138-day and 180-day tenors, clearing at 17.63% and 17.14%. These rates were considerably higher than the Treasury Bills stop rates, creating a differentiated return environment for institutional investors.
The 91-day and 182-day instruments also saw limited allotment, with N22.33 billion and N10.45 billion accepted, respectively. The resulting yield structure was relatively flat, indicating limited additional returns for longer-term investments.
Auction outcomes and yield trends
The 91-day bill saw N51.56 billion in subscriptions against a N100 billion offer, with N22.33 billion allotted at a 15.40% stop rate. For the 182-day instrument, N20.27 billion in bids were submitted against the same N100 billion offer, and N10.45 billion was accepted at 15.79%.
This yield structure shows minimal difference between tenors, offering limited extra returns for longer investments. The 182-day and 364-day instruments were only one basis point apart, reflecting a flat yield curve.
Read Also: Google Pay now works with Mastercard in Nigeria
Liquidity and market forces
Banking system liquidity stood at N8.59 trillion before the auction, up from N6.94 trillion the previous week.
These rates were higher than Treasury Bill stop rates, providing institutional investors with alternative return options.
Secondary-market Treasury Bill yields declined to 17.47% on October 27 from 18.21% on October 14, reflecting broader market easing. Benchmark yields for one-month and six-month tenors were 16.68% and 16.63%, while the 12-month yield rose to 18.61%.
The DMO’s recent strategy contrasts with third-quarter patterns, where advertised offers were often exceeded due to strong demand. At the October 7 auction, N968.47 billion was allotted against a N900 billion offer, with the 364-day stop rate at 15.85%.
The one-year rate has declined significantly from August’s 17.59%, when N4.4 trillion in bids were submitted against a N700 billion offer. By September 9, it had fallen to 16.62%, rising briefly to 15.90% on October 14 before the latest reduction to 15.80%.
Recent auction trends and investor trends
The latest auction marks the second consecutive session where the debt office rejected a large portion of bids. In the October 14 auction, approximately 74% of subscriptions were unallotted, despite the 364-day stop rate increasing to 15.90%.
This reflects a broader market trend.
