Nigeria’s treasury bill (T-bill) market saw a significant shift on Wednesday as yields on the one-year instrument dropped to 22.58% from 25.49%, the lowest level in a year.
The decline signals a potential shift in monetary policy as investors priced in the impact of Nigeria’s new inflation data.
The drop in yields comes after a bull-run that had persisted since early 2024, when rates spiked following the Monetary Policy Committee’s (MPC) hawkish stance.
Yields had climbed from 9% in January 2024 to a peak of 30.7% in November before gradually retreating.
“This is driven by a cautious outlook on inflation (considering the significant decline in inflation to 24.48 percent vs 34.80 percent in December) and prevailing market sentiment,” Matilda Adefalujo, a fixed-income analyst at Meristem, said.
The easing inflation figures, combined with strong market liquidity, have fueled speculation that the MPC may soon consider a rate cut, marking a potential shift away from the 850 basis point rate hike cycle seen in recent months.
Meanwhile, the Open Market Operation (OMO) bill yields also dropped by 300 basis points in the latest auction, reinforcing expectations of an imminent monetary policy adjustment.
Despite the decline in yields, investor interest in one-year treasury bills remained robust, with total demand reaching N2.3 trillion, significantly exceeding the available supply.
The Central Bank of Nigeria (CBN) ultimately sold N774.1 billion worth of T-bills, against a subscription of N2.4 trillion.
On shorter-term instruments, demand remained tepid. The 91-day and 182-day T-bills saw limited investor interest, with only N34.76 billion of the N80 billion 91-day bill sold, and N34.98 billion allocated for the 182-day bill.
Yields on both tenors dropped for the first time in ten auctions, with the 91-day bill falling to 17.76% from 18.86% and the 182-day bill declining to 19.97% from 20.39%.
Adefalujo noted that the CBN’s focus on managing borrowing costs may have influenced the decision to lower T-bill rates.
“On the other hand, the higher offer size of N670 billion, which is significantly lower than the volume of maturing bills N955.40 billion, could have prompted CBN to consider reducing rates on the instruments,” she said.
Market analysts project that liquidity from OMO, NTB, and bond maturities could reach N31.26 trillion in 2025, with the government expected to borrow N9.16 trillion from the domestic market.
With the MPC meeting today, investors remain cautious, closely watching for signals on whether the CBN will shift towards a more accommodative policy stance in response to the declining inflation trend.
