Economic conditions: Banks, investors rush FG bonds, T-bills

AS Nigeria auctions N110 billion worth of bonds today, there are strong indications that Deposit Money Banks and other investors will go for government securities despite falling yields.

The scramble for virtually risk-free government securities according to some investment advisers is not only to take advantage of  higher yields, but to safeguard their funds as high rates of unemployment and slow economic growth or recession thickens .

Dealers revealed that average yield across benchmark bonds declined on all trading days of last week except Friday.

Generally, investors see bond yields fall when economic conditions push markets toward safer investments. Economic experts describe bond yield as the amount of return an investor realizes on a bond.

They identify conditions that might decrease bond yields to include:  high rates of unemployment and slow economic growth or recession.

Average yield on Monday last week dropped 0.1per cent to 15.2per cent (from 15.3% on previous Friday) as the Federal Government of Nigeria (FGN) MARCH 2036 bonds saw buying interest despite overall quietness in the market. Average yield according to dealers  further decreased by 0.1 per cent on Tuesday to 15.1per cent. On Thursday, average yield settled at 15.0 per cent with increased activity observed at the short end of the curve.

Similarly, Nigeria’s interbank overnight lending rate jumped to 23 percent on Friday from 10 percent its previous close, after the central bank sold treasury bills at higher yields to lure foreign investors, traders said

Findings by Nigerian Tribune show that Money market activities closed with a record N1.2 trillion over-subscription to the Nigerian Treasury Bills (NTB), meaning that banks and other financial institutions are also cashing-in heavily on the recent jerk-up of the benchmark interest rate by the Monetary Policy Committee (MPC), of the Central Bank of Nigeria (CBN).

According to analysts,the benchmark interest rate at 14 per cent would give higher returns on investments in fixed income and government securities, with a near zero risk compared to other financial market investments and lending to other sectors of the economy.

Dealers said the subscription rates for the instruments, last week, ranged from 17-18 per cent.

Meanwhile,The DMO is expected to re-open N40.00billion, N30.00billion and N40.00billion worth of 14.50per cent  JUL 2021 (5yr), 12.50per cent JAN 2026 (10yr) and 12.40per cent FGN MAR 2036 (20yr) respectively at FGN bond auction today August 17.

Also treasury bills worth N62.44billion will be offered (91day: N32.44billion and 182day: N30.00billion whilst anticipating the redemption of treasury and Open Market Operation (OMO) bills worth N62.44billion and about N118.10billion respectively. “Barring any OMO auction from the CBN, the market may continue its bullish trend this week with continuous downwards movement in yields as system liquidity soars and dealers take positions ahead of the auctions,” dealers at an. Investment house in Lagos disclosed to investors.