Nigeria 364-day T-bills draw N2.87 trillion on real yield
Nigerian institutions aggressively bid for one-year sovereign debt as it remains the only local instrument offering a positive real return above 15.91% inflation.
The Central Bank of Nigeria (CBN) allotted N1.191 trillion at its July 15 auction, driven by an unprecedented N2.872 trillion in bids for the 364-day tenor alone. The 364-day instrument was oversubscribed 7.18 times, starkly contrasting with the undersubscription of both the 91-day and 182-day bills. This marks the sharpest polarization of investor appetite in the Nigerian Treasury bill market this year.
The divergence reflects a strict calculation around inflation. With June consumer prices rising 15.91% year-on-year and food inflation at 17.52%, the 91-day and 182-day stop rates of 16.30% and 16.50% offer negligible or negative real returns. Conversely, the 364-day bill cleared at 17.66%, providing roughly 175 basis points of positive real yield and drawing intense institutional competition.
Demand was so concentrated that the one-year paper cleared at a 51-basis-point premium to its secondary market rate of 17.15%. The shorter tenors cleared at discounts to their respective secondary curves. Investors clearly accepted lower returns on the short end only to position themselves for the long-dated issuance.
Liquidity sterilization
The CBN accepted N1.062 trillion of the 364-day bills, overshooting its initial N400 billion target by N662 billion. This continues a recent pattern of oversized allotments, echoing the June 17 and July 8 auctions. The central bank is simultaneously financing the government's N29.2 trillion fiscal deficit and executing its Q3 liquidity sterilization program, which targets N5.8 trillion in gross issuance between July and September.
July is set to be the largest planned monthly net withdrawal of the year. The CBN aims to sell N2 trillion in bills this month against just N647.79 billion in maturities. Another N700 billion auction is scheduled for July 29, implying a further net drain of funds from the banking system.
Rate cut outlook
The 364-day stop rate dipped 4 basis points from the prior auction, coinciding with the softer June inflation print. Research analysts at Cowry Asset Management expect the CBN to deliver its first rate cut at the September Monetary Policy Committee meeting. If realized, current levels could represent the final opportunity to lock in one-year returns above 17%.
