Yields on Nigeria’s one-year Treasury bills fell to the lowest since April 2016, while demand for three-month debt surged to a record as local funds pile into the debt after the central bank restricted their access to its higher-yielding securities.
Monetary authorities sold one-year paper at 10 per cent Wednesday, while the rate on 182-day bills was nine per cent and 91-day debt sold at 7.8 per cent. With the country’s inflation rate at 11.2 per cent in October, this means real yields on all short-term government debts are now negative.
Investors offered to buy 13 times the amount of three-month bills on offer, the highest bid-to-cover ratio since Bloomberg started compiling the data in 2008. A total of N125 billion ($345 million) worth of bills were sold at the auction.
Pension funds, whose holding of high-yielding central bank bills amount to about N2.2 trillion ($6.1 billion), have been left looking for alternative investment outlets after being barred from holding central-bank instruments, leading them to clamor for Treasury bills, the next highest-yielding securities in the debt market.
The good news is that, as yields on the country debt is becoming less attractive, the Nigerian Stock Exchange (NSE), which has been rated as one of the world’s biggest decliners could be the major benefactor of the central bank’s decision to ban the use of pension funds from buying bonds.
“A ban on Nigerian pension funds buying popular high-yielding central bank bonds could end up providing a welcome boost to one of the world’s worst-performing stock markets” , said Bloomberg.
The funds have been barred from the central bank’s sales of Open Market Operations bonds, short-term debt that the Abuja-based regulator uses to control liquidity. Holdings of the bonds amount to about N2.2 trillion ($6 billion), a quarter of the assets managed by Nigerian pension funds.
With the bonds, which yield an average of 15 per cent, out of the picture, funds may turn instead to the local stock market, the third-worst performer globally over the past year among benchmark indexes tracked by Bloomberg.
