The Debt Management Office (DMO) sold treasury bills totalling N6.91 trillion in the first quarter (Q1). The figure represents a 277.5 per cent rise when compared to N1.59 trillion recorded in the corresponding period in 2023.
The primary market auctions by the Central Bank of Nigeria (CBN) have seen healthy investors’ sentiment and improved demand due to attractive yields, which come as investors continue their prowl for higher returns.
Operators said the situation is slowing down the flow of capital into the equities market even as macroeconomic challenges, especially naira devaluation, lingering inflation and insecurity continue to weaken the purchasing power of Nigerians.
According to experts, with the Q1, 2024 earnings churned out by companies and anticipation of interim dividends ahead of the half-year result, activities in stocks are expected to remain upbeat. However attractive debt instruments have continued to blight the equity market.
Specifically, the market capitalisation of listed equities, which rose significantly to N59.42 trillion on March 15, 2024, depreciated to N55.56 trillion last Friday), representing N3.85 trillion loss while the all-share index declined by 5,500 points or 5.6 per cent to 99,587.25 from 105,087.25 achieved on May 15.
In Q1, the CBN offered a total of N2.21 trillion and sold N6.01 trillion while N1.29 trillion offers were put on offer during the corresponding period in 2023 and a total of N1.59 trillion was sold within the period.
Treasury bills currently give 21.4 per cent yield for 365 days while commercial papers are up to 25 per cent. Head of Research, FSL Securities, Victor Chiazor, said the fund flow to the fixed income market if sustained will affect liquidity in the equity space, which may trigger a bearish market in the short term until the yield environment becomes less attractive for investors.
According to him, the rise in value of allotment in treasury bill auctions is due to the CBN’s decision to mop off excess liquidity as well as the increased appetite of investors wanting to take advantage of the high-yield environment.
“Unlike this time last year when rates were largely lower and investors’ appetite was weak as seen by the total subscription for most government offers.
This year offers higher yields and as such attracted more subscriptions for most government offers,” he said.
Research Analyst at Cowry Asset Management, Charles Abuede, said primary market auctions have witnessed increased investors’ sentiment due to the attractive yields’ environment.He said the development is part of the apex bank’s efforts to ensure that investors hold more naira-denominated assets.
Investment Banker and Stockbroker, Tajudeen Olayinka, said the current effort of CBN to attract foreign portfolio inflows into the economy to bring about dollar liquidity to the foreign exchange market is responsible for large-size issuances of government securities in Q1.
According to him, the government believes that a high-interest rate regime will be more attractive to foreign portfolio investors who had hitherto stayed away from the financial markets because of the multiple exchange rates regime of the past leadership of CBN.
Olayinka pointed out that the program is coming at a huge debt service cost to the government, the reason for the introduction of all sorts of levies and further subsidy removal from other services like electricity ‘Band A customers’.
He stated that it may be difficult for Nigeria to be out of it in a short time, except the monetary and fiscal authorities choose to follow other less expensive but complex routes, to solve the crisis in the economy, given that some other countries, developing and developed countries, are also running similar programs to solve similar problems at this time.
“The sustainability of large-size issuances and huge debt service cost to government is very much doubtful. It is also not sustainable for the country because of the associated high cost of capital in the economy. This is a trying time for Nigeria,” he said.
