The relatively high inter-bank market liquidity occasioned by idle cash in banks, unattractive returns in the equities market, and increased transparency in the FMDQ Over-The-Counter (OTC) market are contributing to rising value of Treasury Bill (T-Bill) deals.
Treasury Bills are short term government debt instruments maturing in one year or less, sold at a discount and redeemed at par. The Federal Government, through the Central Bank of Nigeria (CBN) issues T-Bills to provide short-term funding for government budget deficit.
BusinessDay trend watch findings show that in the three months to October 2014, T-Bills deals worth N6.5trillion were recorded at the FMDQ OTC market, according to the daily OTC fixed income market summary.
At the OTC market, in August, 2014, increased liquidity drove T-Bill deals high, as instruments worth N2.459trillion were traded; while in September, T-Bill deals worth N1.882trillion were recorded. Also, as at October 2014, T-Bills worth N2.201trillion were traded at the FMDQ OTC market.
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Analysts say investors quest for safe havens, especially when the equities market heads south, continues to drive appetite for T-Bills, a debt instruments which offers very little risk of default.
“The relatively high inter-bank market liquidity has been a major driver of increased trading activity in the TBill segment of the OTC market, especially as consensus expectation of transitory higher yield environment (on the run-up to elections) has somewhat weakened investor appetite for bonds and attendant trading activity on long duration assets,” Abiola Rasaq, research analyst at Associated Discount House Limited, said.
He added: “In addition to the liquidity-induced rise in trading volume in T-Bills, increased transparency in the OTC market has also deepened foreign investor participation in the secondary market for Nigerian Treasuries.”
“Treasury Bill is the most liquid asset in the market. All idle cash of banks are invested in T-Bills so as to earn some income, and are also sold at the need arises. In addition, most of the CBN’s interventions to manage liquidity have been through the use of Open Market Operation (OMO) which necessarily increases the level T-Bills available for trading.
“Finally, since the equity market has not produced an attractive return so far this year, the significant available liquidity is being channelled to the money market,” Femi Ademola, head, research and intelligence, BGL plc, a Lagos-based investment house, told BusinessDay.
Also, Kayode Omosebi, analyst at UBA Capital plc said, “The general apathy by investors in equities driven by a number of factors which we all know, has sparked much activity in the fixed income market, particularly the Treasury Bills space.
“Also, the Treasury Bills market still offers attractive yields in relative terms and investor’s are locking in on these, coupled with liquidity boost in the money market in the last two months.
“When you look at it from a risk angle, due to the looming risk in the Nigerian market, investors are averse to taking position in long term investment opportunities. The ones who still invest in the market are doing more of shorter term instrument which basically have a low impact to the looming risk in the market,” Omosebi added.
According to FMDQ in its explanation of the debt instrument, T-Bills are usually issued through a competitive bidding process and traded on FMDQ OTC platform; “T-Bills are by nature, the most liquid money market instrument and are backed by the guarantee of the Federal Government. They are in essence promissory notes issued by the government”.
Iheanyi Nwachukwu
