T-Bills Investors to Demand Higher Rate Amid Rising Inflation

treasury bills investors
Image Credit: Corporate Finance Institute

By Dipo Olowookere

**As N106bn Bond Coupon Payments Impact System Liquidity

The frequency at which stop rates of treasury bills are declining in recent times in Nigeria is giving some investors in that space something to worry about.

At the last exercise held on Wednesday, January 15, 2020, the Central Bank of Nigeria (CBN) offered the debt instrument for as low as 2.95 percent. Two days later, the National Bureau of Statistics (NBS) released a report that showed that inflation rate for December 2019 increased to 11.98 percent from 11.85 percent in November 2019.

From this, an investment in T-bills offering 3.95 percent seems bad because of a negative return of 9.03 percent. Normally, an investment should yield gains above inflation rate to be termed profitable.

Worried by this, analysts at FSDH Research, said in a report on Friday that investors may begin to demand for higher treasury bills rates to cover for the rising inflation rate, which might likely stretch above 12 percent in January 2020.

“Higher inflation is expected to cause upward pressure on the T-bills yields across the curve, as investors will demand a higher return to compensate for inflation risk,” the report said.

On Friday, on the Nigerian treasury bills side, the market closed positive with average yields declining by 0.50 percent to settle at 3.45 percent from 3.95 percent at the previous session, with buying interest witnessed across the medium and long tenors. This compressed the average yields by 0.89 percent and 0.76 percent respectively.

In the report, FSDH Research said the average OMO yields depreciated during the session across the curve by 0.02 percent to 13.10 percent from the previous level, 13.12 percent.

Also, average yields on the long-term maturities fell by 0.12 percent, while yields on the short-term instrument increased by 0.04 percent.

At the money market, the payment of bond coupon worth N106.1 billion by the Nigerian government positively impacted system liquidity on Friday. The inflow came as the average money market rates further reduced by 1.18 percent during the session to settle at 3.43 percent.

Business Post reports that the Open Buy Back (OBB) rate dropped 1.14 percent to 3.00 percent from 4.14 percent, while the Overnight (OVN) rate declined by 1.21 percent to 3.86 percent from 5.07 percent.

Dipo Olowookere is a journalist based in Nigeria that has passion for reporting business news stories. At his leisure time, he watches football and supports 3SC of Ibadan. Mr Olowookere can be reached via dipo.olowookere@businesspost.ng

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