Not only have the yields on both Treasury-bills and FGN bonds hit a bottom record from a double interest rate enjoyed some four years ago, fixed-income investors seeking to put funds in the Federal Government short-term debt instruments have recorded N558.61 billion lost bids in one month.
More than N78.36 billion worth of failed transactions were recorded at the Nigerian Treasury Bills auction conducted on June 17, 2020 by the Central Bank of Nigeria (CBN) on behalf of the Federal Government (FGN) due to the excess liquidity in the financial system.
While the CBN raised N10.64 billion at the last T-bills auction, investors were willing to invest more than eight times the amount offered at N89 billion. Investors’ high demand for the instruments drove stop rates to dip further across all tenors at 1.8 percent, 2.0 percent and 3.75 percent on the 91-day, 182-day and 364-day bills, respectively.
Investors also jostled for the N100 billion the Debt Management Office (DMO) sought to raise at the FGN bond auction with N445.16 billion for the 12.75 percent FGN April 2023 (reopening 5-year bond), 12.50 percent FGN March 2035 (re-opening 15-year bond) and 12.98 percent FGN March 2050 (re-opening 30-year bond).
According to the auction result seen by BusinessDay, investors oversubscribed for the June FGN bond by more than four times the amount that was offered.
Yinka Ademuwagun, research analyst at United Capital, linked the reason for the lost bids to the efforts by the government and the CBN to maintain low rates environment across the fixed income market.
“Most of the lost bids were partly due to investors asking for relatively high yields, but the government and the CBN are not willing to dance to their tune. So for those kinds of investors, they would have to look at other investment outlets with attractive yields,” Ademuwagun said.
For other alternative investment instruments that have the potential for good returns, industry analysts pointed at the equities market, corporate bond and the long-term private equity and joint venture capital industry.
Meanwhile, Kalu Aja, CEO of the Abuja-based AfriSwiss Capital Assets Management Ltd, cautioned that investment should match risk profile and objectives, adding that it might be difficult to “really tell people where to invest if I don’t know their risk profile”.
Equities market
While the excess liquidity condition in Nigeria’s financial system is expected to be further exacerbated by maturing OMO bills in Q3 and Q4, industry analysts recommend the Nigerian equities market as an investment option that holds opportunity for good returns.
“Other investment alternatives apart from T-bills would naturally be the equities market,” Ayorinde Akinloye, a research analyst at CSL Stockbrokers, said.
Market analysts explained that they are already seeing investors taking positions to tap from the equities market.
“Some of these investors are damming the negative impact COVID-19 will have on corporate performance in 2020 as they force on the potential for double-digit capital appreciation as well as high single-digit dividend yields,” Ademuwagun said.
Corporate bond
Aside from the equities market, the other investment option investors could tap from is the bond issued by corporates as they have higher returns than the FGN bond.
“So the other option on the table is corporate bonds, and commercial papers,” a Lagos-based analyst said on the condition of anonymity.
A corporate bond is a type of debt security that is issued by a firm and sold to investors. The company gets the capital it needs and in return, the investor is paid a pre-established number of interest payments at either a fixed or variable interest rate.
Private equity/joint venture
Long-term investors who are not risk-averse can consider putting their funds in private equity and joint venture industry as there are a lot of Nigerian start-ups who are in dire need of growth capital, according to market analysts.
Akinloye recommended that long-term-focused investors should begin to tap into the growing PE and VC industry.
“I believe institutional investors (particularly PFAs) would have to take more risk on longer-term investments. This would involve finance startups and companies that require growth capital,” Akinloye said.
Venture capital is financing given to start-up companies and small businesses with the potential to break out while private equity, at its most basic, is equity-shares representing ownership of, or an interest in, an entity that is not publicly listed or traded.
“Nevertheless, I expect these funds to trickle into the equities market which represents an easier alternative relative to long term PE or VC funding,” Ademuwagun said.
