CBN overshoots T-bills target by N2.34trn as borrowing costs fall

The Central Bank of Nigeria (CBN) allotted N8.14 trillion in Nigerian Treasury Bills during the third quarter of 2026, exceeding the Federal Government’s N5.8 trillion quarterly target by N2.34 trillion as strong investor demand allowed the government to raise substantially more funds even as short-term borrowing costs began to fall.

A review of eight Treasury Bill auctions between July and September showed that the N8.14 trillion allotment was 40.34 per cent above the planned issuance for the quarter, with the 364-day bill accounting for the overwhelming share of investor demand.

The one-year instrument alone attracted N7.09 trillion in allotments against N3.8 trillion offered, accounting for about 87 per cent of total Treasury Bill allotments during the reviewed period.

The aggressive borrowing pattern was most visible in July and August, when the CBN repeatedly allotted more than the advertised offer as banks and other investors competed heavily for government securities.

On July 8, the CBN allotted N1.06 trillion against N700 billion offered, while another N1.19 trillion was allotted on July 15 against a N600 billion offer.

The momentum continued into late July and August, culminating in a N1.46 trillion allotment on August 12, even though the bank had offered N700 billion.

The pattern changed sharply in September as interest rates began to ease. Allotments moderated to N762.88 billion on August 26, N865.71 billion on September 2 and N1.05 trillion on September 9 before falling to N497.59 billion on September 23.

At the same time, the yield on the 364-day Treasury Bill fell from a Q3 peak of 17.70 per cent on July 8 to 15.89 per cent by September 23, a decline of 181 basis points.

The sharp reduction in yields signals a major change in the cost of short-term government borrowing. It also followed the Monetary Policy Committee’s decision to cut the monetary policy rate by 350 basis points to 23 per cent at its September 21-22 meeting.

For the Federal Government, the combination of strong demand and lower yields is significant. It means the sovereign can continue to access large pools of domestic liquidity while potentially paying less to finance short-term obligations.

But the scale of issuance raises a wider question for the economy: how much of the liquidity absorbed by government securities could otherwise have financed businesses?

Banks, pension funds, insurers and other investors are major participants in the government securities market. Attractive Treasury Bill yields provide them with relatively low-risk investment opportunities, while commercial lending to manufacturers, SMEs and other businesses carries higher credit and recovery risks.

The heavy concentration of demand in the 364-day instrument therefore highlights the continuing competition between government borrowing and private-sector credit.

The sharp fall in yields towards the end of the quarter could eventually ease that pressure if lower government-security returns make lending to productive businesses more attractive. But the effect will depend on whether banks are willing and able to redirect liquidity into the real economy.

The Q3 experience also shows how quickly government borrowing conditions can change. Investors moved from accepting yields near 18 per cent on one-year Treasury Bills to less than 16 per cent within weeks, reflecting changing liquidity conditions and expectations about monetary policy.

With the Federal Government continuing to rely heavily on the domestic market to finance its fiscal needs, the next Treasury Bill programme will provide an important test of whether lower rates can translate into cheaper government funding without crowding out the credit needed by Nigeria’s private sector.