Yields from Treasury bills down 42% in 9 months


Average yield on treasury bills fell sharply by 42 per cent in nine months from January to September, driven by influence of rising inflation in the pricing of fixed income investments.
Afrinvest disclosed this in its weekly update of development in the nation’s financial market. The Company stated, “Analysis of yields in the T-bills and bond market shows that between January and October 2015, average yields have declined from 14.3 per cent and 15.3 per cent to 8.3 per cent and 14.2 per cent respectively.
Factoring the rise in inflation within the period, average real return on investment has declined significantly between January and October 2015 from 6.1 per cent to 1.7 per cent.” Last week, the National Bureau of Statistics (NBS) announced that inflation rose to 9.4 per cent in September from 9.3 per cent in August. This represents the eight consecutive monthly increases in inflation, from 8.0 per cent in December 2014.
This, according to Afrinvest is already influencing the pricing of treasury bills and bonds in the fixed income market, resulting to sharp decline in average yields on treasury bills and bonds in the first nine months of the year.
Commenting on the September inflation figure, the company stated, “We opine that investors in domestic yield markets will begin to price the rising inflation within the context of real return (interest rate discounted for inflation) which is gradually diminishing on a successive month basis given that inflation trended northward from 8.2 per cent in January to 9.4 per cent in September 2015.
“Although various macroeconomic and market circumstances have shaped the pricing of yields in the fixed income market so far in the year, it is our view that investors will begin to price rising inflation into yields for optimal returns. “Our projection for inflation for the rest of the year is still gloomy; hence, we expect investors to continue to price market securities at much more higher yields to compensate for the rising inflation.”
Meanwhile, the amount of excess liquidity in the interbank money market dropped by N214 billion last week. From N1.2 trillion at the close of business the previous week, excess liquidity dropped N756 billion on Wednesday before rising to close at N986 billion courtesy of funds from payment of maturing treasury bills by the Central Bank of Nigeria (CBN.  Consequently, cost of funds remained relatively stable when compared with the closing levels of the previous week.
According to Afrinvest, “The financial system during the week remained awash with liquidity following the inflow of N1.1trillion that came in on Friday (09/10/2015) which brought the opening balance on Monday to N1.2 trillion. “Consequently, the Open Buy Back (OBB) and Overnight Rate (O/N) opened the week at 0.8 per cent and 1.2 per cent  respectively. The liquidity condition stayed upbeat but gradually moderated to N756.4 billion on Wednesday as the OBB and O/N firmed at 0.8 per cent and 1.1 percent in that order.
However, with the inflow of N283.7 billion in OMO repayment on Thursday, liquidity level improved to N1.0 trillion while the OBB and O/N remained stable at Wednesday level. At the close of trade on Friday, average liquidity level closed at N986 billion while the average OBB and O/N rates settled at 0.8 percent and 1.1 per cent accordingly.”

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