The interest rates on Nigerian government Treasury bills have dropped as investors eagerly buy into these financial instruments. This decline in yield—by nine basis points—was seen in the secondary market, where traders buy and sell these bills after their initial issuance by the government......CONTINUE READING THE ARTICLE FROM THE SOURCE>>>>>
Many investors showed strong interest in specific Treasury bills set to mature on April 10, December 11, and January 22. This increase in demand has led to lower returns (or yields) on these bills, as more people are willing to invest in them despite the lower profit margin.
One major reason for this investor activity is the expectation that Nigeria’s inflation rate for January will soon be adjusted using 2024 as the base year. This means the government is updating the way it calculates inflation, which could result in a lower reported inflation figure. A lower inflation rate could encourage the Central Bank of Nigeria (CBN) to lower interest rates to boost economic growth.
Market experts have observed that investors are taking advantage of the current returns available on Treasury bills, particularly before the anticipated inflation adjustment. The demand for these bills remains strong despite liquidity challenges in the financial system, meaning that while there may be limited cash flow in some areas of the economy, investors still find Treasury bills an attractive place to park their money.
On Tuesday, the yield on Treasury bills declined by eight basis points, bringing the average return to 22.4%. Specifically, short-term bills saw the biggest drop in yields (-14 basis points), while mid-term and long-term bills recorded smaller decreases of -1 basis point and -9 basis points, respectively, according to investment firm Cordros Capital Limited.
Analysts noted that the fall in yield was particularly driven by strong demand for bills set to mature in 58 days, 177 days, and 303 days. Similarly, the yield on Open Market Operation (OMO) bills—another type of short-term government debt—fell by 20 basis points to 26.8%, as investors continued to put their money into naira-based assets.
Financial analysts expect this trend to persist, although at a slower pace, as investors adjust to available liquidity in the market, according to TrustBanc Financial Group Limited.