The latest auction of Nigerian Treasury Bills (NTBs), conducted by the Central Bank of Nigeria (CBN) on September 4, 2024, showed the robust demand for government-backed securities in an economy facing ongoing macroeconomic challenges.

The auction attracted an overwhelming response from investors, with total subscriptions reaching over N1 trillion, a clear indication of the market’s hunger for stable and relatively risk-free returns.

The CBN offered a total of N233.31 billion across three tenors—91-day, 182-day, and 364-day bills. Despite this modest offering, investor interest soared, with total subscriptions hitting N1.13 trillion, representing an oversubscription rate of 384.17%. This figure is 9.96% higher than the N1.03 trillion in total subscriptions from the previous auction on August 21, 2024.

The high subscription levels reflect investors’ preference for the safety of government securities amidst an environment characterized by inflationary pressures and economic uncertainties. However, despite the strong demand, the CBN remained cautious in its allotment, sticking to its initial offering of N233.31 billion. This approach marked a 19.81% decrease in allotment from the N291.03 billion allotted in the previous auction, indicating a strategic move by the CBN to control the yield curve and manage liquidity effectively.

Detailed Breakdown of Auction Results

91-Day Bills

   Offer Size: N19.6 billion

• Total Subscriptions: N41.7 billion
• Allotment: N7.86 billion

While the 91-day bills were oversubscribed by more than double, showcasing significant investor interest, the CBN’s selective allotment resulted in only N7.86 billion being issued, far below the subscription total, suggesting a conservative approach to liquidity management.

182-Day Bills

• Offer Size: N10.55 billion
• Total Subscriptions: N17.97 billion
• Allotment: N1.99 billion

For the 182-day tenor, while subscriptions were also strong, the CBN allotted just N1.99 billion out of the nearly N18 billion in bids, reflecting a cautious stance in a market keen on securing medium-term returns.

364-Day Bills

• Offer Size: N203.15 billion
• Total Subscriptions: N1.07 trillion
• Allotment: N223.47 billion

The 364-day bills were the star of the auction, drawing a staggering N1.07 trillion in subscriptions. Despite this overwhelming demand, the CBN allotted N223.47 billion, the highest of all tenors but still a fraction of the total bids. This underscores the attractiveness of longer-term securities in a high-inflation environment.

Bid Rates and Stop Rates: A Market of Mixed Sentiments

The auction saw a wide range of bid rates across all tenors, reflecting mixed sentiments among investors about the future direction of yields and the broader economy.

91-Day Bills: Bid rates ranged from 16.30% to 20.00%, with the stop rate settling at 17.00%, a decline from the 18.20% recorded in the previous auction.

182-Day Bills: Bid rates varied between 17.50% and 20.50%, with the stop rate closing at 17.50%, down from 19.20% in the last auction.

364-Day Bills: Bid rates spanned from 27.00% to 30.00%, reflecting expectations for higher returns amid persistent inflation. The stop rate for these bills dropped to 18.94%, from 20.90% previously.

Despite the decline in stop rates across all tenors, the yields offered remained attractive, particularly for the 364-day bills, which provided a return of 23.3654%. The 91-day and 182-day bills also offered competitive returns of 17.7675% and 19.1881%, respectively, making them appealing options for yield-seeking investors.

As the CBN prepares to re-issue N2.2 trillion worth of maturing NTBs in the fourth quarter of 2024, the auction results from September provide key insights into investor behavior and market dynamics. The re-issuance program, part of the government’s broader efforts to manage liquidity and sustain economic stability, is expected to record another oversubscription.

In an economy where inflation remains a dominant concern and monetary policy is tightening, the continued strong demand for NTBs suggests that government securities will remain a cornerstone of investor portfolios. However, the CBN’s careful management of issuance and allotment will be crucial in navigating the balance between providing attractive returns and maintaining economic stability.

We’re learning that Japan’s Nippon Steel cannot acquire US Steel. The Pittsburgh-based entity had given itself up for acquisition in the heat of steely-fire global competition which has decimated the iconic company. The Biden Administration blocked a $14.1 billion deal which would have brought an investment of $3 billion and kept some older plants intact. To save those jobs, it is very likely that the US government will inject some funds into US Steel. Hello, that is Pennsylvania and this is election season!

When you read about the men who built America, this company has a “chapter”.  When the United States overtook the United Kingdom at the end of the 1890s, the Americans wanted a pillar upon which they could scale a virtuoso industrialization vision. Two men – JP Morgan (the banker) and Andrew Carnegie (the industrialist) – decided in 1901 to establish US Steel (sure, many mutations happened). The company became a catalyst as America industrialized. Simply, US Steel was a fulcrum of America’s 20th century economic dominance.

When I went to interview at Carnegie Mellon University for a faculty job, the dean took me to a building. He explained how Carnegie designed some campus buildings with a steel roll in mind, just in case if the educational vision fails, he could convert all to a plant. As a faculty, you would see that he created that university in the likeness of his industrialization playbook: tons of technical components. CMU is ranked #1  or #2 in AI, autonomous systems, computer science and computer engineering in the US.

By 1917, the largest publicly traded company in the United States was US Steel. But things happened. Yes, fifty years later, in 1967, the largest recorded public company on market cap  in the US was IBM.  Later, it was GE in the early 1980s. Today, we have knowledge companies like Apple and Microsoft running the show.

In all these cases, we can learn of one thing: accelerating destruction. Simply, generations of companies prepare nations for the next phase, and if they succeed, most times, they fade in relevance. When US Steel powered America, its success produced infrastructure companies like IBM  and Intel which then provided automation and computing capabilities for GE across industries. GE organized America in many ways, seeding pillars which enabled modern knowledge firms like Apple and Microsoft to blossom. 

The next generation of largest American companies will feed on the success of Google, Microsoft and Apple. I posit that native and new species of AI companies will rule the markets by 2050. It is magical that US Steel is looking for economic fire for the steel!

Possibly, this acquisition would have gone through if there was no war in Europe. Yes, even though US Steel may seem overlooked as the rain has since stopped falling there, it makes a product which remains vital for America’s national security. Biden does not want to disarm America even in the hands of an “ally”. But as they say, woe to that giant which cannot make its steel. And a giant wants to keep it in-house because things happen!

The recent turbulence in the stock market has been a cause for concern for investors worldwide. The United States equities market experienced a significant downturn, with over $1 trillion being wiped out. A notable contributor to this decline was NVIDIA, a leading technology company, which saw its stock price fall by almost 10% following a subpoena from the Department of Justice (DOJ). This news has sent ripples across global markets, including Japan’s Nikkei 225, which fell by 3%.

NVIDIA’s market cap saw a staggering $437 billion erased since its earnings report last week. The DOJ’s antitrust subpoena is part of an investigation into the company’s competitive practices, particularly in the artificial intelligence (AI) sector. The market reacted swiftly to the news, with NVIDIA’s shares plummeting, resulting in a significant loss of market value. The DOJ is concerned that NVIDIA may be making it difficult for customers to switch to other suppliers and is penalizing buyers who do not exclusively use its AI chips.

When a tech giant like NVIDIA experiences a substantial decline, it can lead to a domino effect impacting other tech companies. Investors often view such events as indicators of broader market trends, potentially leading to reduced confidence in tech stocks as a whole. This can result in a sell-off in the sector, affecting companies that may be fundamentally sound but are caught in the market’s reactionary wave.

Moreover, the Nikkei 225’s fall reflects concerns about the global economic outlook, which can further dampen investor sentiment towards tech companies. These companies, especially those involved in semiconductor manufacturing and AI technology, may see their stock values fluctuate in response to such macroeconomic indicators.

The impact of NVIDIA’s situation was felt globally, as Japan’s Nikkei 225 index dropped more than 3% following the Wall Street drop. The fall was attributed to lackluster manufacturing data and the repercussions of the U.S. market’s decline. This highlights the interconnectedness of global financial markets and how events in one major economy can influence others.

Companies directly associated with NVIDIA through supply chains and partnerships, such as Taiwan Semiconductor Manufacturing Company (TSMC) and Samsung Electronics, have experienced declines in their stock values. These companies are integral to NVIDIA’s operations, providing essential components for their products. The ripple effect of NVIDIA’s stock drop extends to other semiconductor manufacturers and related tech firms, emphasizing the sector’s sensitivity to shifts in market leaders’ fortunes.

Similarly, the fall of the Nikkei 225 has affected a range of Japanese tech companies. Major players like Toyota Motor Corp., Sony Group Corp., and SoftBank Group Corp. have seen significant share price drops. Chip maker Tokyo Electron and chip equipment maker Lasertec Corp. also faced steep declines, illustrating the widespread impact on the tech industry within Japan and beyond.

The volatility has not been confined to Asia, as European semiconductor stocks like ASML Holdings have also been impacted, with shares falling in response to the global market sentiment. This demonstrates the far-reaching consequences of market movements in key industry players and indexes like NVIDIA and the Nikkei 225.

The situation with NVIDIA and the subsequent market reactions underscores the volatility and sensitivity of the stock market to regulatory actions and corporate news. Investors are reminded of the importance of diversification and staying informed about the companies within their portfolios. As the DOJ’s investigation into NVIDIA continues, the market will be watching closely for any developments that could further influence stock prices and investor confidence.