10-09-2015 by 
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The Central Bank of Nigeria (CBN) has released the auction calendar for Q4 2015 and it shows ample supply of the short term debt instrument.4th Quarter 2015 NTB Issue Programme

Very soon investors will get ready to complete their bidding forms and one of the issues they will grapple with is what interest they should submit their bid at. If you look at previous auctions, you will discover that they were done at different rates for different auctions and for  different maturities. The question then is what drives interest rate. In other words, what should investors pay attention so  as to    get a better inkling of the direction of interest rates. The answer to this is to pay attention to the determinants of interest rate.

Determinants of Treasury Bill Interest Rates.

Many factors  affect Treasury bill interest rates in general, as well as rates for specific issues of Treasury securities, in particular. Among the factors that may have general effect on Treasury Bills include:

  • Demand:

Demand  for risk-free fixed-income securities  like Treasury Bills affects interest rate on such securities. In a situation where investors have concern for default or liquidity, the tendency is usually for such investors to fly to safety.  When this flight occurs, investors usually fly to Treasury Bills given their characteristics for safety and liquidity. This increase in demand increases the price for the security thereby pushing down the rate. This can be seen in the present day stock market in Nigeria where more and more people are buying Treasury Bills because equities are under performing.

  • Supply of T-bills by the  government also affects the rate. When government, in a bid to finance government budget or projects increases the number of Treasury Bills issued relative to demand, investors will need to be motivated to invest in such bills. The only way to motive them is to issue the bills at higher interest rates. Therefore, increase in supply of Treasury Bills increases the yield on it.


  • Economic conditions may also influence rates. There are empirical evidence that support the notion that T-bill rates typically rise during periods of business expansion and fall during recessions. During periods of expansion, investors tend to be presented with different viable investment choices and as such, to get them to invest in treasury bills will require that such bills be issued at higher rates.


  • Inflation and inflation expectations are other factors that determine interest rates in that periods of relatively high (low) rates of inflation usually are associated with relatively high (low) interest rates on T-Bills. This is because if investors do not get yields that are higher than the rate of inflation, they are not getting any returns in real terms. 

Therefore, when bidding for Treasury bills, look at such things as those enumerated above and you will be better positioned to know at what interest to bid. Another guide is to look at the YTM or the Bond Equivalent Yield of existing Treasury Bills with similar days to maturity (DTM) of the one being auctioned.  For example the 91 day bill to at about 11.9%, 182 day at about 14.5% while 364 day bill should go for about 15.6%