Investors with excess cash chase govt’s treasury bills in Nigeria

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IN the midst of rapid erossion of the naira, local and foreign investors looking for both higher returns and security of their funds have resorted to chasing the 364-day Nigerian Treasury Bills (NTBs).

Last week, investors recorded oversubscription of 1523 percent, as their subscription hit N2.62 trillion as against the N161.33 billion offered by the Debt Management Office (DMO).

At the mid-week NTB auction, the expectation of a higher interest rate attracted investors, leading to oversubscription across the three tenors but highly concentrated at 364-day paper.

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The DMO allotted N1.18 trillion with a distribution of N29.83 billion for 91 days, N25.58 billion for 182 days, and N1,134.30 billion for 364 days. The stop rates on the 91-day and 182-day remained flat at 16.24 percent and 17.00 percent, respectively, while the 365-day paper increased by 38bps to 21.50 percent.

This is similar to previous auction where the 364-day Nigerian Treasury Bills (NTBs) issued by the Central Bank of Nigeria (CBN) recorded oversubscription of 1,746.7 percent, as subscription by investors hit N2.48 trillion as against the N142.46 billion offered by the apex bank.

The auction result of the CBN also revealed that the 182-day NTBs recorded total subscription of N58.18 billion against the N1.56 billion offered with the allotment of N25.58 billion.

In addition, the 91-day NTBs had an offering of N17.61 billion but recorded a subscription of N76.81 billion with the CBN’s allotment at N29.83 billion.

The Nigerian Tribune’s findings showed that the total offered amount stood at N161.32 billion as investors’ subscription stood at N2.62 trillion, leaving the CBN with N1.19 trillion total allotments in the final NTB auction for this March 2024.

The auction results, however, revealed that the bid range for 364-day stood at 16.2390-25.4900 percent, as the subscription levels for the 364-day NTB were robust, reflecting heightened investor appetite amidst the current economic landscape.

The Central Bank of Nigeria hiked the MPC rate, and this move has significant implications for both Nigerian citizens and business owners.

Experts explain that the logic is that the government is encouraging investors to lock up their funds by giving an incentive to do so.

Nigerians have been complaining that things are expensive on the market. Some experts believe that MPR rate hike will solve the problem, as the country will attract more dollars when foreign investors invest in fixed-market assets like Treasury bills.

When they exchange their dollar for naira to invest in Treasury bills or fixed deposits for high returns, the exchange rate remains stable because of liquidity of dollars which in turn drives down the price of market goods.

Another merit is that since money won’t circulate as before because the CBN wants to take money away from the hands of Nigerians and then force them to save so as to tame inflation, the traders in the market will be forced to reduce the price of their goods because less cash in circulation means only a few customers can afford to buy what they are seeking.

Other stakeholders believe that the reason being that foreign institutional investors who will rush to invest in Nigeria’s fixed market, like Treasury bills and bank fixed deposits, will bring dollars, which CBN will use to create liquidity and support the naira. These foreign portfolio investors have been arriving for the past month because as of March 8, they brought $2.3 billion, which the CBN used to clear forex liabilities and backlog recently according to available records. On the other hand, others reason that Companies and businesses will be forced to sack their staff and employees and cut down on expenses, meaning less cash in circulation and more people out of work This implies that an increasing number of individuals will fall into poverty due to circumstances beyond their control.

The high interest rate at the bank will force many businesses to close, they feared, because not every business can afford to do business with a loan that has a 40percent interest rate. And because the country in this instance, has sacrificed growth over inflation, Nigeria will go into recession before the end of the year or the first quarter of next year, and this will come with the attendant hardship, hunger and misery for the citizens ahead.