Investors chase govt T-bills with N329.4bn excess money

As the Federal Government seeks to borrow money to finance its expenditure pending receipt of revenue, indications emerged over the weekend that investors, armed with N329.4 billion and looking for safest place  to invest their money for up to one year are chasing FG’s treasury Bills.

They are issued by the Central Bank of Nigeria (CBN), who is the banker to the government. In addition to using TBs to borrow money on behalf of the government, the CBN also uses
them to control the amount of money in the economy (via the banking system). When the CBN wants to reduce money in the economy (money supply), it sells TBs to the public. The money invested in the TBs automatically leads to reduction in money supply. Also when the CBN wants to increase money supply it buys TBs from the public.

Dealers said investors showed preference for longer dated instruments of 297-day and 364-day instruments as Prompting the two to be oversubscribed by N142.0 billion and 187.4 billion respectively.

As such, average rate across tenors eventually closed the week at 15.9 per cent, indicating a flat rate Week on Week (W-o-W) close.

Meanwhile, dealers said the Treasury-bills auction conducted midweek saw the CBN allot N36.9 billion of the 91-day, N39.2 billion,182-day and N193.0 billion of the 364-day instruments at stop rates of 13.9 per cent, 17.3 per cent and 18.6 per cent respectively, even as they expect rates to remain high this week.

“In the week ahead, there are no maturing securities and we expect money market rates to trade in double digits barring any major inflow into the system, while activities in the Treasury Bills market trade mildly bullish,” one dealer said. Treasury bills (TBs) are short term government debt instruments. Hence investing or buying TBs is tantamount to lending to government on a short term basis usually below one year. For example, if the government wants to pay salary for this month, and it is yet to receive the income for the month, it could ask the CBN to help it raise money by selling TBs.

The CBN issues the TBs at a specified interest rate, specifying the maturity, usually 91 days (three months). Usually, individuals invest in TBs but because the banks are mandated to keep a portion of customers deposit in liquid instruments (instruments that can be easily exchange for cash), which is the liquidity ratio; they are the biggest investors in TBs.

Whenever the CBN issues TBs for any of the above purpose, all or some of the TBs may be purchased.  If all the TBs are not purchased, the CBN warehouses the outstanding TBs, and reissue them at a later date. The reissued TBs are called secondary market TBs, while newly issued TBs are called Primary Market TBs.  Secondary market TBs are also called OMO (Open Market Operation) TBs.