Naira
Yields surge in Nigerian treasury bills market amidst rising policy rates
Yields in Nigeria’s Treasury Bills market have experienced a significant increase, reaching 17.67 per cent as of March 26, 2024, up from 6.29 per cent at the beginning of the year.
The surge follows a series of unprecedented hikes in the monetary policy rate, which has totalled 600 basis points so far this year, to 24.75 per cent, according to a report by FSDH Research.
The FGN Bond and Treasury Bills markets have witnessed a substantial yield rise in 2024. The average yield in the FGN Bond market climbed from 14.13 per cent on the first trading day of the year to 19.29 per cent by March 26, 2024.
Treasury Bills, commonly called T-Bills, are short-term government-backed securities issued by the Central Bank of Nigeria (CBN) to meet short-term funding requirements. They typically mature in 364 days and are sold at a price below their face value.
Explaining the mechanics of treasury bills, analysts at Parthian Partners outlined the process by which these securities operate.
The CBN conducts biweekly auctions where buyers submit bids, and the lowest average bid is accepted. These bills are then sold at a discount to their face value. Investors purchase T-Bills at a discounted price and receive the face value upon maturity, resulting in a profit.
The Central Bank of Nigeria (CBN) announced plans to issue N1.64 trillion in treasury bills in the second quarter of 2024, corresponding to maturing bills between March and May.
The treasury bills programme calendar released by the CBN outlined allocations of N414.29 billion for 91-day tenor, N43.75 billion for 182-day tenor, and N1.18 trillion for 364-day tenors.
These treasury bill issuances, conducted twice a month, serve multiple purposes, including financing the government’s budget deficit, managing liquidity in the banking system, and controlling inflation.
The CBN’s recent decision to raise the key interest rate by 200 basis points to 24.75 per cent in March 2024 aims to address inflationary pressures and stabilize the foreign exchange market.
The move marks a cumulative 600 basis points increase in the benchmark interest rate over the past month, following a 400 basis points hike in February 2024.