High system liquidity pushes investors to turn blind eye to inflation risk
…as yields on T-bills move close to negative … investors post N45bn unsuccessful bids
More than N45 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 excess liquidity chased after limited investments instruments.
With the few attractive investment opportunities in Nigeria amid the low yield environment, fixed-income investors who participated in the government short-term instrument were forced by the ‘there is no alternative’ (TINA) pressure to keep rates moderated across tenors.
Although, the investors would have ordinarily demanded more return for Nigeria’s 13.22 percent inflation risk.
“There is strong liquidity in the market but not enough investment vehicles,” Ayorinde Akinloye, a research analyst at CSL stockbrokers says.
Investors bid at rates as low as 1 percent, 2 percent and 12.80 percent on the 91-day, 182-day and 364-day bills, respectively.
Subsequently, the apex bank settled it stop rates at 1.09 percent, 1.5 percent and 3.05 percent on the 91-day, and 182-day maturities, a further drop from the previous stop rates of 1.10 percent, 1.55 percent and 3.05 percent recorded in the previous auction.
With a 29-month-high inflation rate at 13.22 percent in August, return on investment for T-bills plunged to -10.17 for the 364-day instrument and -12.13 percent and -11.72 percent for the 91-day, and 182-day maturities, respectively.
“This means a negative real return for investors, which is not good for them, but on the other hand good for the Federal Government as it means they can now finance their deficit at a low cost,” Omotola Abimbola, a macro economist at Chapel Hill Denham, says.
The stop rates reported in the auction results from the Nigerian treasury bills primary market for the week, 16-Sep-20, is the least Businessday has reported since it started tracking the data in August 2016.
“This is the lowest rate in a long time. I feel the rate of decline will continue to moderate. However, with the high volume expected maturities, we don’t expect rates to improve for the rest of the year except a major policy shift emanates from the CBN to change the current market structure,” Ayodeji Ebo, a Lagos-based investment professional, states.
Analysis of the market result seen by Businessday shows that investors jostled for the N158.75 billion the CBN sought to raise at the auction with N204.16 billion, meaning investors oversubscribed by a whopping N45.41 billion.
“Opportunities to put money into right now are limited,” Obinna Uzoma, chief
economist at EUA Intelligence, says, adding that more money is therefore parked in treasury bills.
While investors were willing to subscribe to the 91-day instrument with N3.98 billion the CBN only allotted N2 billion, meaning N1.89 billion was recorded as unsuccessful bids.
Further analysis of auction result reveals that the 182-day medium-term paper was oversubscribed by N7.08 billion. While the central bank raised N8.39 billion, investors were ready to put in N15.47 billion in the instrument.
Also, the apex bank sold N148.36 billion worth of bills for the 364-day paper, but investors jostled with a subscription worth N184.71 billion and thus, recorded N36.35 billion unsuccessful bids.