THE Federal Government raised only N71.16 billion from the Nigerian Treasury Bills (T-bills) market on Wednesday, rejecting the bulk of investors’ N1.91 trillion bids as a widening gap between the amount investors wanted to lend and the rates the government was willing to pay limited its borrowing.
The outcome highlights a growing tension in the short-term debt market. Hence, while investors are offering substantial funds, the government is unwilling to accept most of them at the yields demanded.
At the October 28 auction, investors submitted N1.908 trillion in bids against an advertised offer of N800 billion. However, the Debt Management Office (DMO) allotted just N71.16 billion, leaving N728.84 billion of the planned issuance unraised.
The rejection was concentrated in the 364-day T-bill, which attracted N1.84 trillion in subscriptions against an offer of N600 billion. The DMO accepted only N38.38 billion, rejecting approximately N1.80 trillion in bids for the instrument.
Despite the strong demand, the stop rate on the one-year bill fell to 15.80 percent from 15.90 percent at the previous auction on October 14.
READ ALSO: DMO rejects 74% of T-bill bids, raises one-year rate to 15.90%
The development suggests that the DMO is prioritising the cost of borrowing over the volume of funds raised, refusing to accommodate investors whose required returns exceed its preferred rates.
For the government, this approach could help contain interest expenses on new borrowing. However, it also means that strong demand for government securities does not necessarily translate into the funds available to finance its spending needs.
The Federal Government may need to raise the unissued amount through subsequent auctions or alternative financing channels if the funds remain necessary under its borrowing programme.
The latest auction is particularly notable because investors offered more than twice the advertised amount, yet the government raised less than a tenth of its planned issuance.
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Investors seek higher returns
The concentration of rejected bids in the one-year instrument points to the importance of yield expectations in determining how much the government can raise.
Investors submitted bids for the 364-day bill at rates ranging from 15.00 percent to 18.24 percent. The DMO, however, settled at 15.80 percent, 244 basis points below the highest bid.
READ ALSO: CBN’s N17.5trn OMO sales add to Nigeria’s borrowing pressure
This does not mean every investor demanded a rate close to 18.24 percent. Rather, the wide bidding range indicates differing return expectations, with the DMO accepting only a limited amount at its chosen rate.
Of the N1.84 trillion submitted for the one-year bill, only about 2.1 percent was allotted. The remaining subscriptions were left unfilled.
The 91-day bill attracted N51.56 billion against an offer of N100 billion, while the 182-day instrument received N20.27 billion against the same offer. Their stop rates settled at 15.40 percent and 15.79 percent, respectively.
The results show that the government was able to lower accepted rates across all three maturities, but the amount raised fell sharply below its target.
Abundant liquidity fails to boost government borrowing
The auction took place as banking system liquidity rose to N8.59 trillion before the sale, from N6.94 trillion at the close of the previous week.
READ ALSO: Nigerian govt ramps up short-term borrowing as NTB issuance rises to N4.8trn
The increase was supported partly by N2.13 trillion in Open Market Operations (OMO) maturities, which returned funds to the banking system and provided banks and other investors with additional liquidity.
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Ordinarily, abundant liquidity can support demand for government securities by increasing the funds available for investment. But Wednesday’s auction shows that liquidity alone does not determine how much the government can borrow.
The rate investors are willing to accept remains critical. Where their required returns exceed the government’s preferred borrowing cost, the DMO can reject bids even when substantial funds are available.
Secondary market conditions also point to some easing in short-term borrowing costs. The average T-bill yield declined to 17.47 percent on October 27 from 18.21 percent on October 14, according to the supplied market data.
However, the lower secondary market average does not mean all T-bills are yielding less than the new auction rates. Yields vary according to maturity, purchase price and prevailing market conditions.
What the auction means for the economy
The immediate benefit for the government is the possibility of containing the interest cost of fresh borrowing. Lower rates on newly issued bills can reduce the cost of financing short-term cash requirements and refinancing maturing obligations.
But there is a trade-off. Raising only N71.16 billion against an advertised N800 billion offer leaves a substantial funding gap at the auction. If the government still requires the money, it must consider whether to return to the market, accept higher rates later or seek other sources of financing.
For investors, the rejected bids could lead to a search for alternative investments, including existing T-bills in the secondary market and other short-term instruments. The effect on market yields will depend on how investors redeploy their funds and the rates available elsewhere.
“The auction sends a signal to the wider fixed income market that the government may be unwilling to match every increase in investor yield expectations with higher borrowing rates,” said a Lagos-basedfixed income analyst, Ted Iworo.
“But the key question is whether the DMO can sustain this approach without compromising its funding programme. If investor demand remains strong but borrowing rate expectations diverge, subsequent auctions may continue to record large unallotted subscriptions.”
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