Three implications of T-Bill rates collapse

The interest rates on Nigerian Treasury Bills have collapsed to within single digits for the first time since 2016 in what may be the beginning of a lengthy slide.

At a primary market auction Wednesday, 91-day and 182-day bills fell to 7.8 percent and 9 percent respectively, the lowest rate since June 15, 2016. While the rate on the 364-day bill crashed to 10 percent, the lowest since 2015.

Buying interest from the Pension funds, insurance companies and other non-bank investors fuelled the rate crash, as the latter, now banned by the Central Bank from the OMO market, rotated to government debt.

A lower yield environment is positive for the government’s debt service costs which have ballooned in recent years.

It also provides an opportunity for companies to raise cash through corporate bonds.

Thirdly, a lower fixed income yield environment is also likely to free up excess investable cash for allocation to assets beyond fixed income alternatives, especially equities.

This means that fundamentally sound stocks may be set for a rally in the coming months.