The latest data from the Treasury bill auctions concluded today revealed that Nigeria’s 364-day tenor dropped to 3.05%. On the other hand, Stop rates printed lower for the 91-day tenor at 1.09% and 182-day tenor, which went for 1.5%.
At the Treasury bill auction, the Debt Management Office sold N2 billion on the 91-day paper, N8.385 billion on the 182-day, and N148.361 billion on the 364-day bills.
Ladi Bello, a treasury dealer at Nigeria’s Tier 1 bank in a phone chat interview with Nairametrics, spoke on the just-concluded auction.
“At the Primary Market Auction conducted by the DMO yesterday, N159bn was rolled-over across the standard maturities on offer with demand skewed towards the new 1-Yr paper.
“Stop rates on the short and mid-tenured maturities closed marginally lower than the preceding auction at 1.09% (↓1bps) and 1.50% (↓5bps) respectively, while the 1-Year paper remained unchanged at 3.05%,” Bello said.
Quick facts: The massive disparity between the subscriptions and the offers recorded suggests investors are willing to earn a negative real return, compared to the higher risk in other assets such as stocks and real estate.
Temitope Busari CFA, a leading investment professional in a note to Nairametrics also spoke on the low-interest rates the Federal Government of Nigeria was borrowing with. She said;
“Yesterday’s Treasury bills stop rates were not far off from expectation and yields will likely continue southwards in the near to medium term.
“Additionally, we might see increased pressure on the short-end of the curve due to the dearth of instruments in the market versus excess liquidity.
“Technically, it’s more beneficial for the Government to borrow at the current levels to enhance our chances of recovery post-pandemic recession. Anecdotally speaking, the current interest rate regime is deemed punitive for savers, considering inflation is currently at 13.22%.”
Basically, the CBN sells T-bills on a bi-weekly basis to investors and it is one of the safest investments available. Interests are paid upfront, with the principal paid in full upon maturity.
Understanding Treasury Bills: Basically, when the government goes to the financial market to raise money, it can do it by issuing two types of debt instruments – treasury bills and government bonds.
Treasury bills are issued when the government needs money for a short period, while bonds are issued when it needs debt for more than, say five years. The issuance of treasury bills is also used as a mechanism to control the circulation of funds in the economy.
Treasury bills have a face value of a certain amount, which is what they are actually worth. However, they are sold for less. For example, a bill may be worth N10,000, but you would buy it for N9,600. Every bill has a specified maturity date, which is when you receive the money back.
The government then pays you the full price of the bill (in this case N10,000), giving you the opportunity to earn N400 from your investment. The amount that you earn is considered as the interest, or your payment for lending your money to the government.
The difference between the value of the bill and the amount you pay for it is called the discount rate and is set as a percentage.