Treasury bills dominance soar to 89% in fixed income market on attractive yields

The treasury bills (T-bills) segment of the fixed income market continued its dominance in the market in the month of May 2017 accounting for 88.67% of total turnover of N4.36 trillion, according to the latest FMDQ OTC monthly report made available to Businessamlive.

The report shows that turnover in the fixed income market in the month under review settled at ₦4.36trn,  0.36% (0.15trn) above the previous month’s value, with transactions in treasury bills rising from 85.46% the previous month to 88.67%.

“Outstanding T-bills at the end of the month stood at ₦8.87 trillion, a decrease of 0.13% month-on-month (₦8.88 trillion in April), whilst FGN bonds’ outstanding value increased by 1.62% (₦0.11trillion) month-on-month to close at ₦6.93 trillion in the period under review,” the report stat

Equally, trading intensity in the fixed income market for the month under review settled at 0.43 and 0.07 for T-bills and FGN bonds respectively, from 0.42 and 0.09 recorded for the previous month.

Maturities of between six and 12 months were the most actively traded in the month, accounting for a turnover of ₦1.2 trillion.

Short-term yields on the sovereign yield curve gained an average of 0.03%, yields in the medium-term spectrum remained relatively stable, while long-term yields declined by an average of 0.96%

The spread between the 10-year and 3-month benchmark yields closed negative at -3.31% points for May (-3.14% in April) as the sovereign yield curve continues its downward sloping trend.

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Analysts say the impressive performance of the treasury bills segment may have to do with the high yield and the relative risk in the investments.

In the world of debt securities, T-bills represent the greatest liquidity and the lowest risk to invested principal. They act as the closest thing to a risk-free return in the market.

Therefore all other investments must offer a risk premium in the form of higher returns to entice money away from treasuries. In the current circumstance, the high yield and risk-free nature of treasury bills have lured many investors from the more risky deposit markets.

The CBN has been selling bills more than projected at yields below inflation in recent months to curb borrowing costs as it aims to fund half of this year’s forecast budget deficit of N2.36 trillion through the domestic market. In other words government fiscal policies are also encouraging more investment in treasury at the detriment of the productive sectors, where the public sector us crowding out the private sector from the loans market.

The OTC report also indicated that transaction turnover in Nigeria’s fixed income and currency markets for the month of May amounted to ₦9.49trn, representing a 7.32% (₦6.95trn) increase from the value recorded in April and a 18.90% (₦2.21trn) decrease year-on-year,

Activities in the foreign exchange market accounted for 24.88% (27.71% in April) while money market, including repurchase agreements (Repos), buy-Backs & Unsecured Placements/Takings) accounted for 29.13% (22.85% in April) of total turnover for the reporting period.

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Transactions in the FX market settled at $6.56bn in May, a decrease of 15.03% ($1.16bn) when compared with the value recorded in April ($7.72bn), while activities in the secured money market (repos/buy-Backs) settled at ₦2.61trn in May, 38.13% (₦0.72trn) more than the value recorded in April.

On a year-on-year basis, turnover on repos/buy-backs recorded a 10.92% (₦0.27trn) increase.

On the other hand, unsecured placements/takings also increased by 28.19% (₦0.03trn) month-on-month to close the month at a turnover of ₦0.14trn; a decline of 17.65% (₦0.03trn) year-on-year.