Lagos, Nigeria — In the first half of 2024, Nigerian treasury bills have emerged as a top choice for foreign investors, significantly contributing to capital importation. This trend is largely driven by an oversubscription of these instruments, reflecting a robust investor appetite fueled by attractive yields in Nigeria’s fixed-income market.
The Central Bank of Nigeria’s (CBN) aggressive monetary policy, marked by multiple interest rate hikes, has played a pivotal role in enhancing the appeal of treasury bills. The Monetary Policy Rate (MPR) was raised from 18.75% in January to 26.25% by June, and currently stands at 27.25%, making treasury bills increasingly attractive for both local and foreign investors seeking short-term returns.
Rising Yields Capture Investor Interest
In H1 2024, yields on treasury bills surged, with the 91-day, 182-day, and 364-day instruments offering returns of 16.37%, 17.46%, and 20.62%, respectively—an impressive increase from single-digit rates earlier in the year. During this period, the Nigerian government offered N3.46 trillion in treasury bills, but demand far exceeded expectations, with total subscriptions reaching N18.12 trillion—an astonishing 524.13% oversubscription. However, only 45.03% of this excess demand was met, resulting in investors receiving N8.16 trillion, which is 236.03% above the initial offering.
Foreign Portfolio Investors Drive Demand
Foreign portfolio investors (FPIs) have been instrumental in this surge, investing $2.68 billion in Nigeria’s money market instruments. This reflects a strong trend toward high-yield, short-term investments amid a favorable interest rate environment. Overall, total foreign portfolio investments in Nigeria reached $3.48 billion in H1 2024, with money market instruments accounting for the majority of these inflows. This marks a remarkable 360% increase compared to $756.13 million in H1 2023.
Outlook for the Second Half of 2024
The significant increase in foreign investment in Nigerian treasury bills underscores the effectiveness of the CBN’s hawkish policies, which have significantly boosted yields and made government securities more attractive. While the oversubscription indicates strong investor confidence, the preference for short-term investments reveals a cautious optimism due to ongoing concerns about inflation and currency stability.
The sustainability of this momentum will depend on the CBN’s ability to balance inflation control with currency stabilization, which will be critical for maintaining investor confidence in the latter half of 2024.
