Rates to remain attractive as N310.22bn T-Bills auction offset maturity

MONEY Market Rates are expected to trade at its current attractive levels occasioned by tighter liquidity, as Treasury Bills rollover of N310.22billion offset the impact of maturity of the same amount.

Nigeria plans to sell N310.22 billion ($984.83 million) of short-dated treasury bills at an auction on March 1, according to the Central Bank of Nigeria (CBN).

Average rate rose 55 basis points (bps) week on week (W-o-W), closing at 16.9 per cent on Friday.

The apex bank plans to raise N26.14 billion  in three-month debt, N62 billion in six-month bills and N222.08 billion in one-year notes, using a Dutch auction system. Payment will be due the day after the auction.

“We expect the auction to be oversubscribed given the attractive yields each of the instruments offer,” one dealer said.

Nigeria’s central bank issues treasury bills twice a month to finance the budget deficit, help manage commercial lenders’ liquidity and curb rising inflation.

Annual inflation in Nigeria climbed to 18.72 per cent in January, its 12th straight monthly rise. The trend was worsened by dollar shortages, which have crippled the import-dependent economy and triggered the first recession in 25 years.

The government is also facing funding challenges due to the low price of oil. It expects the budget deficit to widen to N2.36 trillion this year as it tries to spend its way of out of the recession.

More than half of the deficit will be funded through local borrowing, the government has said.

The perceived domination of activities in the money market by surfeit of idle funds  week before last, triggered increased demand for investment in government securities, leading to oversubscription of longer dated instruments by N272 billion.

Dealers revealed that a 364-day tenured instrument was oversubscribed by N253.8 billion, as against the 91-day and 182-day instruments that were oversubscribed by N6.5 billion and N12.3 billion respectively).

One dealer attributed the preference for government securities to flight to safety as the level of risk in the Nigerian economy is high. According to the dealer, investors will look at growth. If monetary policy encourages growth, demand for investment opportunities will rise and yields will decrease. Bond yields are the mirror to the economy. If falling, it is okay but if yields are rising, the economy is at risk the dealer explained.