The Federal Government’s domestic borrowing costs dropped to the lowest level since March 2013 as a strengthening naira eased pressure on inflation and bolstered demand for the debt of Africa’s largest economy.
According to Bloomberg, the Central Bank of Nigeria sold N157bn ($973m) of 91-, 182- and 364-day Treasury bills on May 7, with yields of all the notes retreating.
Investors’ demand rose 20 per cent from the previous auction on April 23, according to data compiled by Bloomberg.
“There’s renewed interest in government securities owing to an improvement in the naira exchange rate and the inflation outlook,” Kunle Ezun, a Lagos-based analyst at Ecobank Transnational Incorporated, said by telephone.
The naira gained 0.8 per cent against the dollar in the past month, rebounding after a fall to a record low in February. That’s easing pressure on inflation, which accelerated to 7.8 per cent in March from 7.7 per cent a month earlier.
External reserves dropped 13 per cent this year as the CBN used the funds to prop up the naira at its twice-weekly currency auctions.
The bank sold N22bn of 91-day notes at 10.24 per cent, N30bn of 182-day securities at 10.65 per cent, and N105bn of 364-day debt at 11.28 per cent, according to data compiled by Bloomberg. The currency weakened by 0.4 per cent to N161.55 per dollar in Lagos on Friday.
Article first appeared in Punch
This is good news for the country in general as lower borrowing cost for government can lead to lower borrowing cost for the private sector. However, for savers and investors it means lower yields on Treasury Bills. 10.65% for TB’s is much lower than the about 12% yield back in March. Despite this, TB’s still offer better yields than most fixed deposit rates for the same tenor.