Nigeria’s Debt Management Office (DMO) rejected about 74% of subscriptions at the Federal Government’s October 14 Treasury bill auction, accepting ₦269.06 billion out of ₦1.032 trillion in bids as the one-year borrowing rate rose for the first time since August.
The auction, conducted by the Central Bank of Nigeria (CBN) on behalf of the Federal Government, saw the stop rate on 364-day Treasury bills increase to 15.90% from 15.85% at the previous auction on October 7, according to auction figures reported by Punch and BusinessDay.
The government had offered ₦450 billion across the 91-day, 182-day and 364-day instruments but allotted substantially less, despite receiving bids worth more than twice the amount on offer. The outcome points to a more selective approach to borrowing as investors seek higher returns on government securities.
The one-year instrument attracted ₦982.21 billion in subscriptions against an offer of ₦350 billion. However, the DMO allotted only ₦220 billion, rejecting approximately 78% of bids for that tenor. Investors submitted bids at rates ranging from 15.00% to 18.18%, while the government settled at a stop rate of 15.90%.
Demand was weaker for the shorter-term instruments. The 182-day bill attracted ₦30.10 billion in subscriptions against ₦50 billion offered, with ₦29.54 billion allotted at an unchanged stop rate of 15.80%. The 91-day instrument received ₦19.91 billion in bids against the same ₦50 billion offer, with ₦19.52 billion allotted at 15.50%.
The latest auction marks a pause in the decline in Treasury bill rates that followed the CBN’s September decision to cut its benchmark interest rate by 350 basis points to 23%. The one-year stop rate had fallen to 15.85% at the October 7 auction after easing from 15.89% on September 23.
However, the latest figures suggest that lower policy rates have not eliminated investors’ demand for higher returns. BusinessDay, citing the Financial Markets Dealers Association (FMDA), reported that the average Treasury bill yield in the secondary market rose to 17.86% on October 13 from 17.64% on October 7. System liquidity also increased to ₦6.30 trillion from ₦3.71 trillion, supported largely by ₦2.41 trillion in Open Market Operations maturities.
For investors, the increase in the one-year stop rate offers a slightly higher return on newly purchased bills at the latest auction. For the government, however, accepting higher rates on larger volumes of borrowing could increase debt-servicing costs. Treasury bills also compete with other investment opportunities for funds that banks and institutional investors could otherwise allocate to private businesses.
The next auctions will show whether the increase in the one-year rate is a temporary adjustment or the beginning of a broader reversal in borrowing costs. For now, the latest results highlight the challenge facing the government as it seeks to raise domestic funds without accommodating every yield demanded by investors.
