Treasury Bill Rates Fall After CBN Cuts Interest Rate To 23%

Treasury bill stop rates fell across all tenors at the latest primary market auction, following the Central Bank of Nigeria’s (CBN) decision to reset its benchmark interest rate to 23 per cent from 26.5 per cent.

The stop rates for the 91-day, 182-day and 364-day Nigerian Treasury Bills (NTBs) contracted by 80 basis points, 70 basis points and 73 basis points to 15.50 per cent, 15.80 per cent and 15.89 per cent respectively.

The decline came as investors placed N4.23 trillion bids for the N600 billion offered by the Debt Management Office (DMO), representing a bid-to-offer ratio of 7.1 times.

At the end of the auction a total of  N497.58 billion was allotted implying a bid-to-cover ratio of 8.5 times. The latest auction followed the CBN’s decision to reduce the Monetary Policy Rate (MPR) by 100 basis points to 23 per cent, a move that has implications for yields across the fixed income market.

Head of Financial Institutions Ratings at Agusto & Co, Ayokunle Olubunmi, noted that the rate cut is expected to exert pressure on fixed income yields although it will support the ongoing rally in the equity market.

Analysts at Coronation Assets Management in an emailed note said, “We expect a further 100–150bps of compression over the next one to two auctions toward 15.00–15.50%, and then a stall.The SDF reset to 20.00% narrows that negative carry to around 340bps, which mechanically supports the bid, but it does not eliminate the constraint.”

On OMO rates and the direction of monetary easing, the analysts said, “If OMO stop rates begin following the MPR lower, the easing cycle has genuinely begun. If they hold near 20 per cent while NTBs rally, the segmentation deepens and the ‘not easing’ message is confirmed by action rather than communiqué.”

The analysts furthered that for FGN bonds and the yield curve, “the reset compresses the very front most, produces modest gains in the 1–3-year sector, and leaves the long end anchored by 2027 supply and election risk premium.

“The net effect is bull steepening, more precisely, a disinversion, rather than a parallel rally. Money market fund and term deposit yields should reset 150–200bps lower over the next six to eight weeks as the SDF change passes through.”