Nigeria’s Central Bank Cut a Rate Its Market Was Pushing Higher
NIGERIA · MARKETS
Key Facts
—The clearing rate: One-year treasury bills cleared at 17.15 percent at the auction held on 26 August, down 44 basis points from 17.59 percent. The true yield works out at 20.70 percent.
—The demand: Bids for the one-year paper reached N3.63 trillion (about US$2.71 billion at the official rate of roughly 1,340 naira to the dollar) against N500 billion (about US$373 million) on offer. The central bank allotted N638.19 billion (about US$476 million).
—The short end: The 91-day bill was allotted at an unchanged 16.30 percent. The 182-day bill was undersubscribed, drawing N52.93 billion (about US$39.5 million) against N100 billion (about US$74.6 million) offered.
—The programme: The full auction offered N700 billion (about US$522 million) across the three tenors. Total allotment came to N762.88 billion (about US$569 million), above the amount advertised.
—A net drain: No treasury bills fell due at this auction. The exercise therefore removed liquidity from the system rather than rolling it over.
—The contradiction: Average secondary-market yields rose 76 basis points to 18.89 percent by 24 August, according to Meristem Securities. The primary market cleared lower while the secondary market repriced higher.
—A caveat on the number: The N3.63 trillion (about US$2.71 billion) bid figure is carried by BusinessDay and Nairametrics. At least one outlet reports N3.38 trillion (about US$2.52 billion), and that outlier is not used here.
Nigeria treasury bills for one year cleared at 17.15 percent at the auction of 26 August, a cut of 44 basis points, after bids of N3.63 trillion (about US$2.71 billion) chased the N500 billion (about US$373 million) on offer. The true yield on that paper is 20.70 percent.
What the Nigeria treasury bills auction produced
The Central Bank of Nigeria offered N700 billion (about US$522 million) across three tenors on 26 August, with results reported the following day. The split was N100 billion (about US$74.6 million) of 91-day paper, N100 billion (about US$74.6 million) of 182-day and N500 billion (about US$373 million) of one-year.
The one-year bill did the work. It drew N3.63 trillion (about US$2.71 billion) of bids, cleared at 17.15 percent against 17.59 percent previously, and was allotted at N638.19 billion (about US$476 million).
The arithmetic holds throughout. A 17.15 percent discount rate on a 364-day bill gives a true yield of 20.70 percent, and the three allotments sum to N762.88 billion (about US$569 million).
The short end told a different story
The 91-day bill drew N103.32 billion (about US$77.1 million) against N100 billion (about US$74.6 million) offered and was allotted at N89.10 billion (about US$66.5 million). Its stop rate was unchanged at 16.30 percent.
The 182-day bill was undersubscribed. Bids came to N52.93 billion (about US$39.5 million) against N100 billion (about US$74.6 million) offered, and N35.59 billion (about US$26.6 million) was allotted, with the rate held at 16.50 percent.
That shape is worth noticing. Investors are not simply buying Nigerian paper, they are buying the longest bill on offer and leaving the middle of the curve alone.
It is a rational preference if you expect rates to fall. Locking in a year at 17 percent is worth more than three months at 16 percent if the next auction clears lower again.
An undersubscribed tenor also tells the issuer something. The 182-day bill was the only one where the central bank could not sell what it advertised, even at an unchanged rate.
Compared with the last auction, demand cooled
One-year bids fell by roughly N559 billion (about US$417 million) from N4.19 trillion (about US$3.13 billion) at the previous auction. The allotment was cut by about N622 billion (about US$464 million) from N1.26 trillion (about US$940 million).
Even so, the coverage remains extraordinary by any standard. More than seven naira of bids arrived for every naira of one-year paper the central bank advertised.
No bills matured at this auction, which changes the character of the exercise. It was a net withdrawal of liquidity rather than a refinancing.
Why the two markets diverged
Meristem Securities reported average secondary-market treasury bill yields rising 76 basis points to 18.89 percent by 24 August, from 18.13 percent on 12 August. Its guidance for the one-year stop rate was 16.70 to 17.50 percent, and the print landed inside that band.
The average hides where the pressure actually sits. After the auction the 91-day bill traded at 17.45 percent against its 16.30 percent stop rate and the 182-day at 17.05 percent against 16.50 percent, while the one-year bill changed hands at 17.24 percent, only nine points above its clearing rate.
The explanations on offer are consistent, even if none is official. The market association FMDA points to improved system liquidity and a debt office holding its pricing stance, and analysts told Punch that demand concentrated in a single tenor lets the central bank reject expensive bids and borrow more cheaply.
BusinessDay heard the same from the buy side: investors accepted a slightly lower return to secure longer-dated paper. The divergence that remains is at the short end, where stop rates now sit well below where those bills trade.
Why this matters outside Nigeria
A true yield of 20.70 percent in a currency that has stabilised is the arithmetic behind a great deal of the foreign interest in Nigerian assets this year. That carry is the mechanism, not the sentiment.
It also sits directly alongside the equity story. FTSE Russell returns Nigeria to its frontier-market indices on 21 September, nearly three years after removing it.
The risk in a carry trade is never the yield, it is the exit. Anyone earning 20 percent in naira is being paid for the possibility that the currency does not stay where it is.
This is market reporting rather than investment advice, and auction results are point-in-time. Rates quoted here are those of the 26 August auction and will change at the next one.
Frequently Asked Questions
What rate did Nigeria’s one-year treasury bill clear at?
It cleared at 17.15 percent at the auction held on 26 August, down 44 basis points from 17.59 percent. That equates to a true yield of 20.70 percent.
How strong was demand?
Bids for the one-year paper reached N3.63 trillion (about US$2.71 billion) against N500 billion (about US$373 million) on offer, and N638.19 billion (about US$476 million) was allotted. The 182-day bill, by contrast, was undersubscribed.
How much did the central bank raise in total?
The auction offered N700 billion (about US$522 million) across three tenors and allotted N762.88 billion (about US$569 million). No bills matured, so the exercise drained liquidity.
Why is the fall in the rate unusual?
Average secondary-market yields rose 76 basis points to 18.89 percent by 24 August. The primary auction cleared lower while the secondary market moved higher, with the gap concentrated in the shorter tenors.
Connected Coverage
The rates story runs alongside the equity one, from Nigeria’s return to the FTSE frontier indices to foreign investors holding just 5.6 percent of the record rally. The wider picture is in Africa: The New Scramble, with more on our Western Africa hub.
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