Here’s where Treasury bill rates could settle in six months

Fixed income investors looking for high yield securities in light of changing markets will not be disappointed in the first half of 2021, as market analysts expect debt yields to shorten. term of the federal government maintain their recent rise.

BusinessDay survey of five market analysts reveals rate expectations on least risky government Treasury bills (treasury bills) to reach 9% before the end of June. Weeks after the Central Bank of Nigeria (CBN) shocked the market with a 10.10% stop rate for the 362-day OMO bill, the highest level in nearly a year, investors at fixed income have demanded higher rates for treasury bills.

“We expect the rate to approach 8-9% before this uptrend subsides,” says Ayodeji Ebo, head of research at Greenwich Merchant Bank.

After hitting a near-zero four-year low in 2020, yields on federal risk-free Treasuries climbed to more than 13 months in March.

According to the outcome of the March 10, 2021 Treasury bill auction, investors bid as high as 8% for the 91-day bill, 9.5%, and 10.5% for the 182-day bill. and 364 days, respectively. But the CBN stood at 2%, 3.5% and 6.5% respectively. Stop rates for 91-day and 182-day bills were flat, but the 364-day bill was up 100 basis points from the previous auction result.

“The increase in stop rates may be linked to the rise in CBN OMO rates a few weeks ago. Investors bid at higher rates and the DMO must also increase the limit rate to fill certain orders, ”says a Lagos-based market analyst.

While interest rates have always been high in Nigeria due to the monetary system in vogue since 2009, which sought to use FGN / Treasury bills and OMO bonds as a means of attracting the US dollar to stabilize the naira , the central bank’s recent OMO policy preventing domestic investors from participating in auctions sent yields to their worst record.

Since October 23, 2019, the umbrella bank has prohibited non-bank premises (individuals and businesses) from participating in OMO auctions on the primary and secondary market. The policy of the CBN is largely in line with its desire to divert liquidity from risk-free instruments to the real sector.

CBN policy pushed yields on government instruments to their historically low levels, and as a result, investors reported negative real returns against a backdrop of rising double-digit inflation in the country.

After hitting a record low since 2016 in the fourth quarter of last year, Treasury bill rates climbed to a 13-month high of 6.5% for the 364-day note, as compiled from the Nigerian T-Bill primary market auction results from March 10, 2021. From a record yield of 4.048% in November 2020, Nigerian 10-year government bonds climbed to 10.62% in March 2021.

The recent rise in yields on government instruments is good news for domestic investors who, for nearly two years, earned a yield well below Nigeria’s inflation rate.

“This is positive for fund managers as well as for Nigerians in a context of rising inflation rates, as the negative real return has fallen considerably compared to the start of the year,” notes Ebo.

Analysis of the outcome of the Treasury bill auction shows that investors are already taking positions ahead of the expected rate hike, as many have started to shift some of their funds away from equities.

While CBN initially planned to raise 88.91 billion naira in the last auction, the willingness of investors to subscribe with 196.82 billion naira prompted the umbrella bank to award bills worth 108, 76 billion naira.

Fixed income investors therefore posted an unsuccessful bid of 88.06 billion naira, which was 207.27 billion naira below the 295.33 billion naira of unsuccessful auctions reported in November 2020, when the opportunities Limited investment has forced investors to choose low risk over high return.

The breakdown of the result of the March 10, 2020 auction showed that investors were willing to subscribe to the 4.71 billion naira raised by the CBN for the 91-day bill with 18.38 billion naira, or nearly four times more than the CBN offer.

The 182-day paper was oversubscribed more than twice with an unsuccessful bid worth N29.55 billion.

While investors were ready to subscribe to the 364-day instrument with 125.44 billion naira, the CBN allocated only 80.57 billion naira, leaving investors with unsuccessful deals worth more than 44 billion naira.

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