Investors Shun Low-yield Treasury Bonds
As N150bn allocation crashes rates
By Ayodele Aminu
An attempt to introduce low-yield treasury bonds into the economy last week was rebuffed by investors who instead moved their funds to the primary market where returns on investment were more favourable. This development led to an over-subscription of 39 per cent.
The true yield for the treasury bonds was 12.6518 per cent per annum, while that of the primary market stood at 15.0431 per cent.
But respite came the way of the money market that had been starved of funds for a couple of weeks following the inflow of about N150 billion from the statutory allocation for September 2004, which automatically led to a crash in the cost of funds (interest rates).
Accordingly, cost of funds that had been on the upswing eased off at the close of business Friday. Call money and 7 days funds for instance, which had traded at an average of 15 and 16 per cents respectively a fortnight ago, fell to 6 per cent while the latter was not available in the market at the close of business. Open Buy Back (OBB) and Overnight funds, which had traded at an average of 13 and 13.5 per cent during the same period, crashed to 5 and 5.5 per cent respectively on Friday.
Ordinarily, the inflow of these funds were supposed to substantially increase investment at the government securities trading but since investors moved away from the treasury bonds obviously because of lower margins, investment at the government securities trading grew by only 9.5 per cent.
Given this scenario, the Central Bank of Nigeria (CBN) was able to mop up a total sum of N69.454 billion from the economy through the sale of bills to banks, discount houses and the investing public compared with N63.36 billion of the previous week.
The government securities trading comprising the Primary Market Auction (PMA) and the Open Market Operations (OMO) are one of the windows through which the CBN controls the amount of liquidity in the system. This, it does by selling bills through which the Federal Government borrows indirectly from banks, thereby mopping their excess funds. A breakdown of the amount withdrawn from the economy last week shows that N4 billion, N3.5 billion, N800 million, N1.134 billion and N30 million were withdrawn on Monday, Tuesday, Wednesday, Thursday and Friday respectively through the daily OMO, while the remaining N60 billion was mopped up through the PMA.
At Monday's daily OMO where bills with life span of 63 days and maturity date of November 22, 2004 were sold, all the N4 billion bills received were sold at the issue and bid rates of 14.2500 per cent apiece, while the true yield stood at 14.6079 per cent. Bills valued at N2 billion matured for repayment, putting the net sale/purchase position N2 billion.
At Tuesday's daily OMO where bills with life span of 63 days and maturity date of November 23, 2004 were sold, all the N3.5 billion bills received were sold at the issue and bid rates of 14.2500 per cent apiece, while the true yield also stood at 14.6079 per cent.
Bills worth N2.11billion matured for repayment, putting the net sale/purchase position N1.384 billion.
At Wednesday's OMO where bills with life span of 35 days and maturity date of October 27, 2004 were sold, all the N800 million worth of bills received were allotted at the issue and bid rates of 12.5000 per cent apiece. The true yield stood at 12.6518 per cent, while bills worth N1.033 billion matured for repayment. The net sale/purchase position therefore stood at N233 million.
At Thursday's OMO where bills with life span of 35 days and maturity date of October 28, 2004 were sold, all the N1.134 billion bills received were allotted at the issue and bid rates of 12.5000 per cent apiece. The true yield stood at 12.6518 per cent, while bills worth 4.380 billion matured for repayment. The net sales/purchase therefore stood at N3.246 billion.
At Friday's daily OMO where bills with life span of 35 days and maturity date of October 29, 2004 were sold, all the N30 million bills received were sold at the issue and bid rates of 12.5000 per cent apiece, while the true yield stood at 12.6518 per cent.
Bills amounting to N1 billion matured for repayment, putting the net sale/purchase position N970 million.
At Thursday's Primary Market Auction - a 91 days tenured investment with December 23, 2004 as its maturity date where an over subscription of N38.5 billion was recorded, all the N65.000 billion bills offered were purchased at the bid rates of between 14.0000 - 14.5000 per cent per annum. The issue rate however stood between 14.0000- 14.4500, the true yield was 15.0431 per cent per annum.
Bills amounting to N59.177 billion were repaid, putting the net sales (purchase) position at N823 million.
The Minimum Rediscount Rate (MRR) that is the nominal anchor of all interest rates in the economy however, remained unchanged at 15 per cent per annum.
Extreme liquidity is expected to continue as more of the statutory allocation is being expected this week. The market is expected to witness high demand at the PMA, while interest rates are however expected to remain at low levels.
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