Investors’ appetite for T-Bills dampens as low interest rate persists

…commercial paper, banks placement offer higher returns

Investors’ interest in the less risky federal government Treasury Bills (T-Bills) instrument has dropped to one of its lowest levels on record.

While fixed-income investors usually oversubscribe for the short-term investment instrument by hundreds of billions of naira, analysis of the auction result for the week traded September 29, 2021, showed that they only reported N59.33 billion worth of unsuccessful transactions.

The failed bids, the amount investors were willing to invest but were not accepted by the CBN, stood at a record high of over N282 billion in June and N86 billion in August 2021.

Dampened investors’ appetite for the risk-free government instrument amid failed attempts to get high returns from the short-term papers forced investors to redirect their funds to the more attractive banks’ placement and commercial paper (CP), according to BusinessDay findings.

As a result of the drop in investors’ appetite, the interest rate on the 364-day bill increased to 7.5 percent in the review week, the second time the rate has gone up since May (its first increase was in August 7.2%).

“Investors were a bit bullish at the auction because the liquidity system was low compared to the previous auction,” Ayodeji Ebo, Head, Retail Investment, Chapel Hill Denham, said.

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Investors bid at rates as high as 5.2 percent, 6.75 percent and 9.1 percent on the 91-day, 182-day and 364-day bills, respectively but the apex bank lowered rates across the three tenors to 2.5 percent, 3.49 percent, and 7.5 percent, respectively.

The stop rate for the 91-day bill has remained flat for most of this year but the yield on the 182-day bill declined for the first time this year to 3.4 percent from 3.5 percent in the previous auction.

While the Central Bank of Nigeria raised N 115.41 billion on behalf of the federal government, investors were willing to put in N174.74 billion.

Breakdown of the auction result for the last transaction in the ninth month of this year showed that investors’ appetite for the longer 364-day bill remained higher than the 91-day and 182-day bills.

While the 364-day bill with a higher interest rate was oversubscribed by N57.61 billion the shorter 91-day and 282-day bills were oversubscribed by a combined N1.75 billion.

The CBN planned to raise N2.26 billion for the shorter 91-day bill but investors said they were willing to subscribe with N5.47 billion. The apex bank eventually issued N 4.61 billion, N2.35 billion more than the CBN’s initial offer.

Investors were willing to bid with N2.95 billion for the N3.24 billion offered for the 182-day bill, N860 million more than what the CBN had offered. The apex bank was able to raise N 2.09 billion, N1.15 less than its initial offer.

While the CBN offered to raise N106.37 billion through the longer 364-day Treasury bill, investors said they were willing to invest more with N 166.32 billion. The apex bank later raised N108.71 billion. Investors reported N57.61 billion worth of unsuccessful bids.

According to market analysts, the decline in the unsuccessful bids reported by fixed income inventors is proof that the volume of funds interested in the short-term debt instrument is finding its way into other investment assets.

Citing where investors are redirecting their investment, Ebo said “a lot of corporates have been issuing commercial paper at attractive rates.” This is coupled with “placement with banks that also comes at an attractive return.”

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