Fixed-income investors seeking high-yielding securities in light of the prevailing developments in the markets have once again been disappointed as attempts to buy Federal Government of Nigeria’s short-term debt instrument at attractive rates were denied.
More than N435 billion worth of unsuccessful transactions were recorded at the Nigerian Treasury Bills (T-Bills) auction conducted Wednesday by the Central Bank of Nigeria (CBN) on behalf of the Federal Government of Nigeria (FGN) as limited attractive instruments forced investors to bid at rates as low as 1 percent each for the 92-day and 182-day bills and 1.9 percent for the longer 364-day bill.
Subsequently, the apex bank settled its stop rates at 0.04 percent, 0.15 percent and 0.3 percent for the 91-day, and 182-day and 364-day maturities, a further decline from the previous stop rates auction of 0.34 percent, 0.5 percent and 0.9 percent.
“There is strong liquidity in the market but not enough investment vehicles,” Ayorinde Akinloye, a research analyst at CSL Stockbrokers, said.
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Analysis of the auction result shows that investors jostled for the N167.81 billion the CBN sought to raise with N603.07 billion, meaning investors oversubscribed by a whopping N435.32 billion, one of the highest unsuccessful bids BusinessDay has tracked so far.
With the rates on T-bills approaching zero and possibly negative, it seems fixed-income investors are more concerned about their exposure to risk than the return on their investment as they turned a blind eye to the double-digit inflation rate and allowed the government to borrow their monies at a record low rate.
With a 30 month-high inflation rate at 13.71 percent in September, the real return on investment for T-bills plunged to -13.67 percent for the 92-day instrument, -13.56 percent for the 182-day maturity, while the longer 364-day instrument has a real return of -13.41 percent.
The stop rates reported in the auction results from the Nigerian treasury bills primary market for the week 11 November 2020 is the least BusinessDay has reported since it started tracking the data in August 2016.
“These rates will soon go into 10 digits 0.0000000001%,” said Ayodeji Ebo, senior economist/head, research & strategy, Greenwich Merchant Bank, hinting that the low yields may mean “free funds for the government”.
While the low-interest-rate environment in Nigeria’s debt market is a boon for the Federal Government and large corporates who are raising capital at cheaper rates compared to bank loans, micro and small businesses, which form the bulk of the firms in the country, are left out.
Banks’ depositors, pensioners and investors are top losers of the low-interest environment as adjusted inflation return has plunged to one of its lowest levels.
A breakdown of the T-bill auction results reveals that even though interest for the debt instrument waned when compared with the previous primary market performance, the Wednesday sale was oversubscribed by more than three times with most demand on the 182-day paper.
The CBN sold N19.78 billion worth of bills for the 91-day paper, N10 billion worth of bills were allotted on the 182-day bills, while bills valued at N138.03 billion were sold on the 364-day paper.
Further analysis of the Wednesday auction result shows that the 92-day paper was more than four times oversubscribed as N80.08 billion worth of bills bounced back as failed bids. The Central Bank raised N19.78 billion worth of bills but investors were willing to subscribe to the short-term instrument with N99.86 billion.
While investors were willing to subscribe to the 182-day instrument with N92.12 billion, the CBN only allotted N10 billion, N30.1 billion less the amount the apex bank had initially put up for the subscription.
Despite attracting the most bids, 364-day paper was allotted N138.03 billion worth of bills, almost two times less the N411.09 billion investors were willing to invest in the longer-term instrument.
