The N150.6 billion worth of Treasury bill offered by the Central Bank attracted stop rates of 0.02% for the 91-day treasury bill, 0.19% for the 182-day, and 0.15% for the 364-day treasury bills, in the most recent primary market auction conducted by the apex bank.
When one factors in inflation, the above translates into negative rates. In the same way, Money market funds, most of which invest in treasury bills are currently yielding near-zero rates. Arm money market fund has a yield of 1.2231%; Stanbic IBTC money market fund, 0.71%; FBN money market fund, 1.65%, amongst others.
This ultra-low interest rate is beginning to cause pain to Nigeria’s money market funds, the bedrock of the country’s mutual fund industry. Until recently, money market funds in Nigeria were not known to suffer significant redemptions or withdrawals. That privilege or accolade seems to be a thing of the past.
I reported last week that going by the NAV Summary report released by the Security and Exchange Commission, SEC, for the week ending on November 13th 2020, 4 major money market funds recorded redemptions totalling about N8 billion. That trend has continued into the week ending November 27th 2020.
Information gleaned or extracted from the November 20th NAV Summary Report indicates that 3 money market funds suffered a combined redemption of N12.9 billion between November 14th and 20th. To be precise, Stanbic IBTC money market fund saw N7.96 billion flowing out, FBN money market fund lost N2.96 billion to redemptions, and ARM money market fund lost N2.065 billion to redemptions as well.
In the week ended November 27th, 5 money market funds suffered huge redemptions as well. In all, the money market category of funds recorded total redemption of N16.488 billion in the week ended November 20th 2020 and N12.6 billion in the week ended November 27th, bringing the total redemptions suffered by money market funds to N54.5 billion since the beginning of November.
Net Zero Effect: Within the same period, Bond/fixed income funds recorded total inflows of N43.5 billion, which is an indication that much of the money that left money market funds are finding their way into fixed income and bond funds.
As long as this continues to happen, the net effect on the mutual fund industry will almost net out to zero and the state of the industry will remain strong.
We are watching.