FG opens Q4 borrowing with N900bn Treasury bill offer as

The Federal Government will open its fourth-quarter borrowing programme on Wednesday with a N900 billion Treasury Bills offer, testing whether the recent decline in government borrowing costs can be sustained as investors adjust to lower interest rates.

The Central Bank of Nigeria (CBN), acting on behalf of the Debt Management Office (DMO), will offer N100 billion each in 91-day and 182-day Nigerian Treasury Bills, while the 364-day instrument will account for N700 billion, or 77.8 per cent of the total offer.

Settlement is scheduled for Thursday, October 8, with the indicative fourth-quarter Treasury Bills issuance calendar expected to be released separately.

The auction comes at a significant point in the fixed-income market. The stop rate on the benchmark 364-day Treasury Bill has fallen to 15.89 per cent from 17.70 per cent recorded on July 8, representing a 181-basis-point decline as the monetary policy environment shifts towards lower interest rates.

The latest rate was established at the September 23 auction, when investors submitted N4.09 trillion for the 364-day bill alone against an offer of N400 billion. The strong demand allowed the DMO to allot N447.07 billion at 15.89 per cent.

Across the three tenors at that auction, total subscriptions reached N4.23 trillion against N600 billion offered, demonstrating that investor appetite for government securities remained strong even as yields fell.

The October auction will therefore provide an important test of how quickly the market is repricing government debt following the Central Bank’s 350-basis-point reduction in the Monetary Policy Rate to 23 per cent.

Lower Treasury Bill yields are positive for the Federal Government because they can reduce the cost of short-term domestic borrowing and refinancing. But they also mean lower returns for banks, pension funds, asset managers and other investors that have relied heavily on government securities for relatively attractive risk-adjusted returns.

The composition of Wednesday’s offer suggests that the government remains particularly interested in longer-tenor short-term funding. The N700 billion allocation to the 364-day bill is seven times the amount being offered at each of the shorter tenors.

The market’s response will also provide an early indication of whether the government can continue borrowing at declining rates without weakening demand for its securities.

The trend is significant after the DMO allotted about N8.14 trillion through eight Treasury Bills auctions in the third quarter, approximately 40.3 per cent above the N5.8 trillion target for the period.

The strong demand for government paper has been supported by substantial liquidity in the banking system. Investors submitted N12.14 trillion in bids at the final two September Open Market Operations auctions against N3.4 trillion offered, while more than N4.6 trillion was reportedly placed at the CBN’s Standing Deposit Facility as of October 2.

For the economy, the falling yield environment could eventually have implications beyond government borrowing. Treasury rates serve as benchmarks for pricing other financial assets, and a sustained decline could create room for lower funding costs for businesses and households.

However, the transmission will depend on whether banks and other financial institutions redirect some of the liquidity currently committed to government securities towards productive private-sector lending.

Wednesday’s auction will therefore be watched not simply for how much the government raises, but for the price it pays to borrow and whether the sharp decline in Treasury yields can continue into the final quarter.