The Federal Government of Nigeria (FGN), through the Central Bank of Nigeria (CBN), has released the results of its Treasury Bills (T-Bills) auction held on March 5, 2025. The auction, which offered N650 billion, saw robust investor demand, with total subscriptions reaching N1.92 trillion. However, the stop rate for the 364-day T-Bill fell to 17.82%, marking its lowest level since September 2024. This decline highlights the ongoing tension between the CBN and the Debt Management Office (DMO) over Nigeria’s borrowing costs.
The CBN has advocated for higher interest rates to attract foreign portfolio investors (FPIs) and stabilize the naira, while the DMO has pushed back, arguing that rising yields are increasing the government’s debt servicing burden. This divergence in priorities has created a complex dynamic in Nigeria’s fixed-income market.
Auction Breakdown
The auction saw strong demand across all three maturities, with the 364-day T-Bill dominating investor interest, accounting for 94% of total subscriptions.
– **91-Day T-Bill**: The CBN offered N70 billion, received N62.57 billion in subscriptions, and allotted N61.52 billion at a stop rate of 17.00%.
– **182-Day T-Bill**: With N80 billion on offer, it attracted N60.05 billion in subscriptions, resulting in an allotment of N50.95 billion at a stop rate of 17.75%.
– **364-Day T-Bill**: The most sought-after instrument, with N500 billion offered, drew N1.80 trillion in bids. The government allotted N717.97 billion, with the stop rate closing at 17.82%, down from 18.50% in February.
In total, the government allotted N830.44 billion, exceeding its initial offer of N650 billion, reflecting strong investor appetite.
CBN vs. DMO: A Clash of Priorities
The declining stop rate on the 364-day T-Bill underscores the ongoing debate between the CBN and DMO over the pricing of government debt. The CBN believes higher rates are necessary to attract foreign investors, whose inflows are critical for stabilizing the naira. However, the DMO contends that rising borrowing costs are unsustainable and could further strain the federal budget.
An anonymous expert noted that the DMO’s decision to refund investors instead of refinancing maturing debts has contributed to the high subscription levels. Typically, the government rolls over maturing T-Bills by issuing new ones of the same value. However, refunding investors has led them to reinvest their funds into fresh auctions, driving up demand.
Inflation and Monetary Policy Implications
The recent rebasing of Nigeria’s Consumer Price Index (CPI) has added complexity to interest rate expectations. The National Bureau of Statistics (NBS) revised the CPI base year to 2024, resulting in a reported inflation rate of 24.48% for January 2025, down from 34.80% in December 2024 under the old methodology. This adjustment has sparked speculation about the CBN’s next policy move, with some analysts suggesting it could justify a less aggressive monetary tightening stance.
At its February 2025 Monetary Policy Committee (MPC) meeting, the CBN held the benchmark interest rate steady at 27.50%, citing the need to assess the impact of the rebased CPI. However, the committee acknowledged that inflationary pressures remain a concern due to structural challenges in the economy.
Outlook for T-Bill Yields
With the CBN pausing rate hikes and the DMO advocating for lower borrowing costs, the outlook for T-Bill yields remains uncertain. While foreign investors may push for higher returns, the DMO’s preference for capped rates suggests that yields could remain subdued in the near term.
As the CBN and DMO continue to navigate these competing priorities, market participants will closely monitor upcoming auctions and policy decisions for further clarity on Nigeria’s debt management strategy and monetary policy direction.
