Decline in TB rate to persist as CBN sells N1508bn

The Central Bank of Nigeria, CBN, is expected to further reduce the interest rate on Nigeria Treasury Bills, NTBs, this week when it sells N150.82 billion worth of the instruments.

After raising the interest rate on 364-Days NTBs by 8,540 basis points (bpts) to 9.75 per cent in April 2021 from 1.21 per cent at the beginning of the year, the CBN reduced the interest rate on the instrument by 2,760 bpts to 6.99 per cent in October.

This downward trend, according to analysts at Cowry Assets Management Limited, will continue this week when the CBN sells N150.82 billion worth of NTBs to replace N155.12 billion worth of maturing bills.

They said: “In the new week, T-bills worth N155.12 billion will mature via the primary and secondary markets to marginally exceed T-bills worth N150.82 billion which will be auctioned by CBN via the primary market; viz: 91-day bills worth N4.80 billion, 182-day bills worth N7.98 billion and 364-day bills worth N138.03 billion. Cowry Research expects the stop rates of the 364-day to moderate amid expected boost in financial system liquidity.”

Making a similar projection, Managing Director/Chief Executive, Financial Derivatives Company (FDC), Mr Bismarck Rewane, noted that the decline in the interest rates on TBs and other fixed-income instruments is making investors switch to equities, adding that this change in investors preference will lead to further decline in the interest rate on 364-Days NTBs.

Speaking at the monthly Lagos Business School Breakfast meeting, Rewane said, “Treasury bills yield to decline further as investors switch to less risky assets such as fixed income.

“Yields in fixed income space are declining and forcing investors to rotate portfolios in favour of equities. ”

Meanwhile, the cost of funds fell sharply in the interbank money market last week following the inflow of N740 billion statutory allocation to states and local governments by the Federation Allocation Accounts Committee (FAAC).

Consequently, the interest rate on Collateralised (Open Buy Back, OBB) lending fell by 6000 bpts to 12 per cent last week from 18 per cent the previous week, while the interest rate on Overnight lending also fell by 6,120 bpts to 12.38 per cent last week from 18.5 per cent the previous week.

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