Yields on Nigerian Treasury Bills dropped significantly in the latest auction, reflecting changing market conditions as investors anticipate the Central Bank of Nigeria’s (CBN) first Monetary Policy Committee (MPC) meeting of the year later on Thursday.
The auction, held on February 19, saw lower stop rates across all tenors despite strong demand, signaling a shift in investor expectations.
The CBN recorded total subscriptions of N2.41 trillion, lower than the N3.22 trillion from the previous auction.
However, the apex bank only allotted N774.1 billion in total, far less than the N1.3 trillion worth of T-bills maturing, which contributed to a sharp drop in yields.
Declining yields amid policy adjustments
At the auction, the stop rate for the 91-day Treasury Bill fell to 17% from 18%, while the 182-day tenor dropped to 18% from 18.5%. The most subscribed 364-day tenor recorded a drop from 20% to 18.43%, continuing the trend of declining rates.
This comes against the backdrop of a decline in Nigeria’s inflation rate, which dropped to 29.90% in January 2025, following the CBN’s rebasing of the Consumer Price Index (CPI).
The rebasing exercise has recalibrated inflation data to reflect a more current economic reality, a move that is expected to influence the MPC’s decision-making process.
For most of 2023 and early 2024, Treasury Bill yields were at historic highs, driven by the CBN’s aggressive interest rate hikes aimed at curbing inflation.
The apex bank adopted a tight monetary policy approach, significantly increasing benchmark rates in a bid to attract foreign portfolio investors (FPIs) and stabilize the naira.
However, with inflation now slowing, the need for high-yielding fixed-income instruments may be reducing.
Expert insight: What’s driving the drop?
Commenting on the sharp decline in yields, Egie Akpata, Chairman of Skymak Partners, explained that the drop in the one-year Treasury Bill discount rate was largely due to the smaller issuance size compared to maturing bills.
“The drop in 1-year discount rate at the Feb 19 TBill auction is mostly driven by the smaller amount of TBills sold (N774.1b) versus the N1.3tr maturing. Those bidding in the auction are aware of this and adjust their bids downward to ensure success at the auction. It is worth noting that some secondary market trades for the 05 Feb 2026 TBill had occurred at 18.50% discount on Tuesday, so it is not a total surprise that this auction printed at 18.43% for the 1-year paper.”
Government borrowing and economic implications
Another factor contributing to the declining yields is the high cost of borrowing, with the Nigerian government being the largest issuer of debt securities.
- As interest rates remain high, the cost of borrowing has had a ripple effect on capital projects, leading to a slowdown in infrastructure financing and other government-led investments.
- Lower Treasury Bill yields could also signal a shift in investor sentiment, particularly among local institutional investors.
- With fixed-income returns declining, investors may gravitate towards alternative assets such as equities in search of higher yields, potentially driving renewed activity in the Nigerian stock market.
Impact on private sector lending
Beyond government borrowing, the drop in risk-free rates could have positive implications for Nigeria’s real sector.
- The manufacturing sector, which has faced rising costs of capital due to high lending rates, may start to experience some relief as falling Treasury Bill yields translate into lower borrowing costs for businesses.
- This could lead to increased loans and advances, supporting business expansion and economic growth.
Market outlook
As the market awaits the CBN’s MPC meeting, investors will be closely watching for policy signals on the next direction for interest rates.
- If the MPC signals a shift towards a more accommodative stance, yields on fixed-income instruments may continue to decline, further influencing investment decisions across asset classes.
- For now, the sharp drop in Treasury Bill yields suggests a turning point in monetary policy expectations, with potential ripple effects across Nigeria’s financial markets.
