The 364-day Treasury bill attracted subscriptions of N1.683 trillion against an offer of N700 billion at the 7 October auction, significantly outperforming the shorter-tenor instruments.
Data reported by the News Agency of Nigeria (NAN) showed that the 91-day and 182-day bills attracted subscriptions of N39.42 billion and N46.87 billion, respectively, compared with offers of N100 billion each.
The preference for the longer-dated instrument persisted at the 14 October auction, where subscriptions for the 364-day bill reached approximately N982 billion against an offer of N350 billion.
Its stop rate edged up to 15.90 per cent from 15.85 per cent at the preceding auction, while the rates on the 91-day and 182-day bills remained unchanged at 15.50 per cent and 15.80 per cent, respectively.
The Managing Director and Chief Executive Officer of MorganCapital Securities Limited, Chukwudi Nga, said investors might be committing funds to longer-term Treasury bills because they anticipate a decline in yields.
Speaking to NAN, Nga noted that the difference between the stop rates on the 182-day and 364-day instruments at the 7 October auction was just five basis points, suggesting that the longer bill’s appeal extended beyond the marginally higher return.
He explained that investors could benefit from securing current yields for a longer period rather than repeatedly reinvesting in shorter-term instruments at potentially lower rates.
When interest rates decline, investors who have locked in higher yields may retain those returns until their securities mature, while those reinvesting in newly issued bills could face lower rates.
Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, also attributed the strong demand to expectations of further monetary easing, attractive returns and the relative safety of government securities.
The investment trend comes against the backdrop of a shift in Nigeria’s monetary policy and a decline in headline inflation.
The Central Bank of Nigeria (CBN) reduced its Monetary Policy Rate from 26.5 per cent to 23 per cent at its September Monetary Policy Committee meeting.
Meanwhile, the National Bureau of Statistics reported that headline inflation fell to 14.63 per cent in September from 15.39 per cent in August.
These developments have influenced expectations about the future direction of interest rates, although Treasury bill yields will also depend on government borrowing needs, financial system liquidity and subsequent monetary policy decisions.
Nga cautioned that investors should not assume that yields would continue to decline, noting that changes in inflation, monetary policy and market conditions could alter the direction of rates.
Despite the appeal of one-year Treasury bills, Nga warned that the instrument might not be suitable for investors who require access to their funds before maturity.
Investors can sell their holdings in the secondary market, but the price they receive depends on prevailing market conditions. If yields rise after a bill has been purchased, its market price may fall, potentially resulting in a loss for an investor who sells before maturity.
The choice between short- and long-term bills therefore involves balancing the benefits of locking in current returns against the need for liquidity and the possibility of changing interest rates.
For investors who can hold their securities until maturity, the 364-day instrument may offer greater certainty over returns. Those with near-term financial commitments may, however, prefer shorter tenors despite the possibility of lower yields.
Strong demand for Treasury bills could help the Federal Government raise substantial funds, potentially without having to offer significantly higher yields to attract investors.
However, Yusuf warned that elevated returns on government securities could make them more attractive than lending to businesses, particularly those operating in manufacturing, agriculture and the small-business sector.
He said sustained investor preference for government instruments could constrain the funds available for productive private-sector investment, although strong demand for Treasury bills alone did not establish that bank lending to businesses had declined.
“The challenge for economic policy is not simply to attract investment into government securities but to improve the allocation of financial resources towards productive economic activities,” Yusuf said.
The concern highlights a broader policy challenge: balancing the government’s need to finance its borrowing requirements with the need to ensure that businesses can obtain affordable credit to expand production, create jobs and support economic growth.
High Treasury bill yields can influence banks’ lending decisions and investors’ allocation of funds, particularly when government securities offer attractive returns relative to the risks and costs associated with private-sector lending.
Yusuf also identified relative stability in the foreign exchange market as a factor that could attract foreign portfolio investors to naira-denominated securities.
Foreign investors may be drawn to the returns available on Nigerian government instruments, but their decisions also depend on exchange-rate expectations, the cost of entering and exiting the market, and the ability to repatriate investment proceeds.
A depreciation of the naira could erode returns when converted into foreign currency, even where an investor earns an attractive yield in local currency.
Consequently, foreign participation will depend not only on Treasury bill rates but also on perceptions of exchange-rate stability and the wider investment environment.
The experts said demand for one-year Treasury bills could remain strong if investors continued to anticipate lower interest rates and sought to preserve prevailing yields.
However, a change in inflation expectations or a renewed prospect of higher interest rates could encourage investors to favour shorter-dated securities, allowing them to reinvest their funds sooner as market yields change.
For investors, the decision will ultimately depend on their financial objectives, cash-flow requirements and tolerance for market risk.
While the latest auction figures indicate a clear preference for the 364-day instrument, the future direction of demand will depend on how monetary policy, inflation, government borrowing and financial market liquidity evolve.
