Demand for T-Bills Remains Ahead of Supply as Long-term Yields Decline

Nume Ekeghe

Investor demand at the Central Bank of Nigeria’s (CBN) first Treasury bills auction for February remained firmly ahead of supply, driving a sharp drop in long-term yields and reinforcing the bullish momentum across Nigeria’s fixed income market.

At the first auction in February, last week, the CBN offered a total of N1.15 trillion across the 91-day, 182-day and 364-day tenors, while total subscriptions surged to N4.59 trillion, representing a 33.41 per cent increase from the previous auction and translating to a subscription-to-offer ratio of 3.99 times.

In a market note, analysts at Meristem Research said demand was overwhelmingly skewed towards the long end of the curve, reflecting investors’ preference to lock in yields.

Also, the T-bills market started this week on a positive note, with the average yield easing by 7 basis points to 17.55 per cent from 17.62 per cent. Buying interest was broad-based across the curve, though it was particularly strong at the short end, including the Mar-26 (-88bps), Apr-26 (-39bps), and May-26 (-22bps) papers. However, some maturities faced selling pressure, notably the Feb-27 (+26bps), Mar-26 (+5bps), and Nov-26 (+4bps) bills.

On the last week’s auction, Meristem stated: “In the primary market, the CBN held its first Treasury bills (T-bills) auction in the month of February this week, offering a total of N1.15bn across tenors. Investor’s demand was strong with total subscription at N4.59trn, up 33.41per cent from the previous auction resulting in a subscription-to-offer ratio of 3.99x. The elevated subscription levels were primarily driven by the 364-day bill, which accounted for 84.90per cent of total subscription.”

Despite the heavy demand, total allotment declined compared with the previous auction, underscoring the CBN’s measured approach to liquidity management.

The analysts said, “Total allotment declined by 10.17per cent from the previous auction to N952.61bn with bid-to-cover ratio at 0.82x (vs. 0.92x previously).”

While stop rates on shorter-dated instruments were left unchanged, the weight of bids at the long end allowed the CBN to cut yields significantly.

“Stop rates on the 91-day and 182-day instruments remained unchanged at 15.84 per cent and 16.65per cent respectively, while the 364-day stop rate declined by 137bps to 16.99 per cent. We opine that the lower rate on the long end was due to the higher volume of bids at the lower band of the bidding rate range, this enabled a reduction in rate. Furthermore, the lower rate is expected to ease borrowing cost for the government.”

The bullish tone was carried into the secondary market, where yields continued to compress across Treasury bills.

“The secondary fixed income market sustained its bullish momentum in this week. The T-bills market was closed on a strong positive note as average yield declined by 60bps to 17.62per cent from 16.22per cent last week. Buying interest was broad-based, with particular demand for longer-dated bills.

“These buying interests were widespread across most instruments with strong demand observed in long dated bills including the OCT-26 (-149bps), NOV-26 (-165bps), and DEC-26 (-171bps) instruments. While, the FEB-26 (+0.96bps) bill was the only decliner in this week’s trading session,” Meristem said.

The rally, the analysts said, also extended to the bond market, with yields declining across most maturities.

They added, “Similarly, the secondary bond market traded on a bullish note this week, with average yields down 31bps to 16.17per cent from 16.48per cent last week. Buying sentiment concentrated in the short to mid end of the curve, particularly in the MAR-2026 (-88bps), APR-2031 (-125bps) and MAY-2033 (-107bps) bonds. Meanwhile, activity in the longer end of the curve was quiet as all instrument closed flat.”

In the Eurobond market, performance was mixed as investors remained cautious. “The Eurobond market closed flat in this week’s trading session, with average yield holding steady at 7.07per cent. Investor sentiment was mixed across the curve as bonds like the Nov-27 (-6pbs), Feb-32 (-3bps), and Sep-33 (-2bps) bonds closing on a bullish note. While sell-offs was observed in some bonds including the 28-Sep-28 (+2bps), 23-Feb-30 (+3bps), and 23-Feb-38 (+3bps). This weeks’ performance suggests that investors remain cautious amid geopolitical tension,” they explained.