Foreign investors have turned to Nigerian treasury bills in the first half of 2024, as money market instruments emerged as the leading contributor to capital importation during the period. Treasury bills, in particular, were heavily oversubscribed, reflecting strong investor appetite driven by favourable yields in Nigeria’s fixed-income market. This surge highlights how rising yields, fuelled by Central Bank tight monetary policy, have drawn both foreign and domestic investors seeking short-term returns.
CBN’s aggressive monetary tightening policy marked by multiple interest rate hikes, has significantly enhanced the attractiveness of treasury bills. In its effort to tame inflation and stabilise the Naira, the CBN raised the Monetary Policy Rate (MPR) from 18.75% in January to 26.25% by June 2024 and as of the time of writing this, the MPR is 27.25%. The sharp rise in rates created a more appealing environment for fixed-income investments, particularly treasury bills, leading to a surge in demand. In H1 2024, yields on treasury bills surged across all tenors, positioning them as a prime investment choice for both local and foreign investors. The 91-day, 182-day, and 364-day bills offered attractive returns of 16.37%, 17.46%, and 20.62%, respectively—up from single-digit levels earlier in the year. The sharp rise in yields positioned treasury bills as a preferred investment option for investors seeking high returns on short-term instruments. During the period, the government offered N3.46 trillion worth of treasury bills for subscription. However, investor demand far exceeded the government’s expectations, with total subscriptions reaching N18.12 trillion—overshooting the original offer by a staggering 524.13%.
Despite this oversubscription, only 45.03% of the excess demand was met, with investors receiving N8.16 trillion, which is 236.03% more than the government’s initial offering. Foreign portfolio investors (FPIs) were pivotal in driving this surge in demand for money market instruments. FPIs invested $2.68 billion into Nigeria’s money market instruments, demonstrating the strong appeal of treasury bills amid a rising interest rate environment. The high-yield, short-term nature of treasury bills made them particularly attractive to foreign investors seeking quick returns in a relatively secure segment of the market. Overall, foreign portfolio investments in Nigeria totalled $3.48 billion in H1 2024, with money market instruments accounting for the bulk of these inflows.
Compared to the $756.13 million recorded in H1 2023, the 2024 figures represent a 360% increase, signalling a renewed interest among foreign investors in Nigeria’s fixed-income assets. The surge in foreign investment in Nigerian treasury bills during H1 2024 highlights the impact of the CBN’s hawkish policies, which have significantly boosted yields, making government securities more appealing. The oversubscription of treasury bills reflects strong investor confidence in Nigeria’s fixed-income market. However, the preference for short-term investments also signals cautious optimism, as investors remain wary of long-term economic risks, including inflationary pressures and currency instability. Sustaining this momentum will depend on the CBN’s ability to balance inflation control with currency stabilisation to maintain investor confidence in the second half of 2024.
