Treasury bill yields edge higher as investors flock to one-year paper

Nigeria’s Treasury bill yields rose modestly at Wednesday’s primary market auction, even as strong investor demand continued to support the market. This is despite sustained liquidity conditions and a continued preference for risk-free government securities.

Auction results released by the Central Bank of Nigeria (CBN) showed the benchmark 364-day Treasury bill closed at a stop rate of 16.35 percent, up from 16.15 percent at the previous auction held on May 20.

The one-year instrument remained the dominant attraction for investors, recording subscriptions of N1.95 trillion against an offer of N500 billion. The CBN eventually allotted N1.24 trillion on the tenor, accounting for the bulk of total allocations.

“The latest Treasury Bills auction closed with strong demand, especially on the 364-day paper, as investors continued to lock in attractive yields,” said Ayodeji Ebo, managing director of Afrinvest Securities.

According to the auction data, the 91-day bill recorded subscriptions of N131.18 billion against an offer of N100 billion, with full allotment. Its stop rate increased to 16.05 percent from 15.95 percent at the previous auction.

The 182-day paper attracted subscriptions of N83.55 billion against N50 billion offered, with allotments of N82.98 billion. The stop rate edged higher to 16.19 percent from 16.14 percent previously.

Ebo noted that investor preference remained skewed toward longer-dated instruments, where returns remain comparatively attractive.

“The 364-day bill continues to stand out for investors looking to lock in returns close to 20 percent on an annualised basis,” he said.

The outcome was broadly mixed relative to expectations, with stop rates printing slightly higher across the 91-day bill, despite projections of broadly stable pricing.

Ahead of the auction, Meristem had projected that stop rates would remain broadly stable, citing strong system liquidity, reinvestment flows, and sustained investor appetite for government securities.

“Demand is likely to be supported by reinvestment flows and continued investor preference for short-dated government securities,” the firm said in a pre-auction note.

System liquidity remained supportive during the auction period, with maturities of about N464.6 billion against a total offer of N700 billion, according to Meristem estimates. The firm also pegged banking system liquidity at between N5.5 trillion and N6.3 trillion ahead of the auction.

The slight increase in stop rates marks a pause in the broader yield moderation trend that has characterised the Treasury bills market in recent months. The 364-day stop rate had declined from 16.73 percent in early March to 16.15 percent at the May 20 auction before edging higher this week.

Analysts expect demand for Treasury bills to remain resilient in the near term, supported by liquidity conditions and continued investor appetite for safe-haven assets.