For those who lived on the abnormally yield of the treasury bills in recent months, hope you enjoyed the ride because the party is over. According to the Debt Management Office (DMO) data released earlier today, the yield for successful bids for the 364-day treasury bills dropped to 15.72%. With this, treasury bill yields drop to a 15 month low.
The Debt Management Office also said that the paper was 300% over-subscribed with bills ranging from 13.25% and 18%. The yield is significantly lower than the 17.0% it offered at the last auction. The reasons for this drop are quite obvious.
First, the plan of the Federal Government to effectively utilize the more volatile but far cheaper dollar debt as a means of financing the country’s deficit expenditure has meant that less local debt is being sourced. Thus, the DMO is no more desperate to sell treasury bills. Simple demand and supply interaction dictates that this will drive the yield down. “Investors want to lock in yields given that rates are going down,” one trader told Reuters.
Secondly, the DMO had indicated its desire to drive Treasury bill yields down as a reflection of the dropping inflation rates. Data from the National Bureau of Statistics have shown that for the past 7 months, the inflation rate has been gradually but steadily dropping. Thus, leaving the Treasury bill yield unchanged would have meant buying debt at too high a price.
If the situation continues like this or gets better, then investors can expect the yields to further drop. If it would reduce to the previously unattractive rates is another matter but as of now, local investors have to sit up. The party is over.