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T-Bill rates increase first time in 16weeks as investors seek alternative instruments

…commercial paper, banks placement offer higher returns

For the first time in four months, fixed-income investors seeking high-yielding securities were not disappointed as attempts to buy the federal government Treasury Bills (T-Bills) instrument at attractive rates was accepted, thanks to the reduced liquidity in the financial system.

The interest rate on the 364-day bill increased to 7.2 percent in the first week of September, the first time the rate has gone up since May.

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.

“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.

Investors bid at rates as high as 6 percent, 6.5 percent and 9.2 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, 3.4percent, and 7.2 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.

Analysis of the T-Bills auction result for the week traded September 8 2021 revealed that the rate at which investors oversubscribed for the government instrument fell to its lowest record year-to-date in the last auction.

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From a record high of over N282 billion in June 2021, investors’ failed bids, the amount they were willing to invest but were not accepted by the CBN, dropped to N86 billion in August.

The unsuccessful bids declined further in the first auction in September by 45.78 percent to N46.63 billion, proof that the volume of funds interested in the short-term debt instrument is finding its way into other investment assets.

While the Central Bank of Nigeria raised N209.50 billion on behalf of the federal government, investors were willing to put in N256.13 billion.

Breakdown of the auction result for the first transaction in the ninth 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 N83.03 billion the shorter 91-day and 282-day bills were oversubscribed by a combined N1.77 billion.

The CBN planned to raise N5.06 billion for the shorter 91-day bill but investors said they were willing to subscribe with N5.85 billion. The apex bank eventually issued N 4.94 billion, N910 million lower than investors’ subscription and N120 million more than the CBN’s initial offer.

Investors were willing to bid with N12.74 billion for the N23.45 billion offered for the 182-day bill, N10.71 billion less than what the CBN had offered. The apex bank was able to raise N.

The apex bank eventually raised N11.88 billion but investors recorded N860 million worth of unsuccessful transactions. The CBN on the other hand raised N11.57 billion less than its initial offer.

While the CBN offered to raise N109.65 billion through the longer 364-day Treasury bill, investors said they were willing to invest more with N 2327.54 billion. The apex bank later raised N192.68 billion, N83.03 billion more than its initial offer. Investors reported N44.86 worth of unsuccessful bids.

Citing where investors are redirecting their investment, Ebo said “alot 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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