Nigeria T-Bill Yields Drop to 2026 Low After Rate Cut

Nigeria's central bank sold short-dated Treasury Bills at the lowest yields observed in 2024, following a substantial interest-rate cut that has spurred investor demand. The move by the Central Bank of Nigeria (CBN) to reduce its benchmark Monetary Policy Rate (MPR) by 425 basis points to 18.75% on May 27, 2024, marked the largest single reduction in nearly two decades. This aggressive monetary easing has led investors to anticipate further rate decreases, prompting a rush to secure current yields before they potentially decline further.

In the latest auction, the CBN offered N1.5 trillion ($977 million) in Treasury Bills across 91-day, 182-day, and 364-day tenors. The 91-day bills were sold at a weighted average yield of 16.50%, the 182-day bills at 17.00%, and the 364-day bills at 17.50%. These rates represent a significant drop from previous auctions, with the 364-day tenor yield falling by approximately 200 basis points compared to the prior auction. The auction saw a strong subscription rate, with a bid-to-cover ratio of 3.03, indicating robust investor appetite for the short-dated debt instruments. The CBN successfully sold N1.5 trillion worth of bills, meeting its offering target.

The substantial rate cut by the CBN is a strategic response to cooling inflation, which has shown signs of moderation in recent months. Nigeria's inflation rate eased to 33.69% in April 2024, down from a peak of 33.95% in March, according to the National Bureau of Statistics. This easing trend has provided the central bank with room to maneuver its monetary policy. Governor Olayemi Cardoso stated that the Monetary Policy Committee voted to cut the MPR by 425 basis points, alongside reductions in the Cash Reserve Ratio for merchant and commercial banks to 10% and 14% respectively, and the Asymmetric Corridor to -3%/+1% from -2%/+2%. These measures aim to stimulate economic activity and reduce the cost of borrowing for businesses and individuals.

Analysts suggest that the current yield levels on Nigerian Treasury Bills, despite the recent decline, still offer attractive returns compared to other investment opportunities, particularly in an environment where inflation is expected to continue its downward trajectory. The CBN's aggressive stance on rate cuts signals a commitment to fostering economic growth, although it also carries the risk of potentially reigniting inflationary pressures if not managed carefully. The sustained investor confidence, as evidenced by the oversubscription of the latest T-bill auction, suggests that the market is currently receptive to the central bank's policy direction and anticipates a period of declining interest rates.