CBN rate cut sends Treasury bill yields below 16% as N4.2trn

Yields on Nigerian Treasury bills have fallen below 16 per cent across the standard tenors following the Central Bank of Nigeria’s (CBN) aggressive 350-basis-point reduction in its benchmark interest rate, marking an immediate repricing of government borrowing costs in the fixed-income market.

The Debt Management Office (DMO) offered N500 billion across 91-day, 182-day and 364-day Treasury bills at Wednesday’s primary market auction, attracting about N4.2 trillion in subscriptions as investors continued to demand naira assets despite the sharp decline in yields.

The CBN cut the Monetary Policy Rate (MPR) from 26.50 per cent to 23 per cent at its September 22 Monetary Policy Committee meeting, its largest single reduction in the current easing cycle. The apex bank also recalibrated its Standing Facilities Corridor to +50/-300 basis points around the new MPR.

The rate cut immediately changed the pricing of short-term government securities.

The 91-day Treasury bill cleared at a spot rate of 15.50 per cent, down 80 basis points, while the 182-day bill fell 70 basis points to 15.80 per cent. The 364-day instrument dropped 73 basis points to 15.89 per cent.

The figures show how quickly monetary easing is feeding into the government securities market, reducing the return available to investors while potentially lowering the Federal Government’s cost of short-term domestic borrowing.

Yet demand remained exceptionally strong. The N4.2 trillion subscription against a N500 billion offer represents more than eight times the amount the government sought, underlining the depth of demand for naira assets even after yields moved sharply lower.

That demand is important for the broader economy because government securities compete with private-sector investments for available funds. A sustained decline in Treasury bill yields could eventually make lending to businesses relatively more attractive to banks and other financial institutions, particularly where private-sector borrowers can offer competitive risk-adjusted returns.

For savers and fixed-income investors, however, the adjustment represents a major change in returns. With headline inflation at 15.39 per cent in August, the 15.89 per cent one-year Treasury bill offers only about a 0.43 per cent real return on an ex-post basis before taxes and transaction costs.

The repricing therefore creates pressure on investors to search for higher-yielding assets as the CBN moves away from the exceptionally tight monetary conditions that prevailed earlier in the year.

The impact is likely to extend beyond Treasury bills. Lower short-term government yields can influence pricing across the bond market, money market funds and other naira-denominated instruments, while also changing the relative attractiveness of equities and other risk assets.

For the Federal Government, the immediate benefit is cheaper short-term funding. For businesses, the bigger potential benefit would come if lower sovereign yields eventually translate into lower lending rates and greater access to credit.

But that transmission will not happen automatically. Banks must still price for credit risk, operating costs, capital requirements and the quality of borrowers.

The latest Treasury bill auction therefore marks an important early test of the CBN’s new easing cycle. The central bank has lowered the policy benchmark sharply; the bond market has already responded. The next economic test is whether the lower cost of money moves beyond government securities into cheaper credit, stronger private investment and higher productive activity.