*Security Concerns Responsible For Investors’ Preference For Instruments With Over 10% Negative Return
Amid rising inflation, investors’ preference for risk-free instruments has continued to increase with their bidding for N384 billion worth of one-year treasury bills in the latest auction of 26th July 2023 at a rate of 12.15% per annum.
However, only N255 billion was allotted as investors continue to over-subscribe to the short-term risk-free investment.
Nigeria’s inflation rate rose to 22.79% in June 2023, representing a 0.38% points increase from 22.41% recorded in the previous month. On a year-on-year basis, the headline inflation rate was 4.19% points higher compared to the rate recorded in June 2022, which was 18.60%.
The implication is that there is growing demand for risk-free investments despite offering a negative real return of -10.64%.
Therefore, investor stakes in treasury bills buttress a wider challenge in the economy as the lack of investable assets forces them to accept negative real returns in exchange for earning zero and losing up to 22.79% in inflation on their cash, according to Nairametrics.
The data was obtained from the latest auction report for Nigeria’s treasury bills sold during the week which sees the one-year bill matures on 25th July, 2024.
Besides the rush for investment in these government-backed instruments, foreign currencies, particularly, dollars, has become a veritable investment outlets for the privileged few and politicians as the value of the local currency continues to nosedive embarrassingly, creating round tripping opportunities for speculators with the attendant volatility in the FX market.
The result is the widening gap between the Import and Export window hovering between N850/870 to the dollar while the ever thriving black market hovers between N890/900, creating anxiety among traders, even as the embattled Central Bank of Nigeria continues its search for a realistic exchange rate.
Analysts say CBN my have been rattled by so many challenges typified by rates unification, inflation pressures that seem to have defied remedies despite continued hike of the anchor interest rate, the Monetary policy Rate, (MPR).
The latest auction report for the Treasury Bills also witnessed investors staking N6.4 billion for the 182-day bill, with the apex bank only able to allot N1.3 billion suggesting a 392% oversubscription.
Investors accepted an interest rate or stop rate of 8% for the 182-day bill.
For the 91-day bill, investors bid N7.8 billion as against the N1.7 billion offered by CBN. The interest rate was at 6%. The maturity date for the auction is 26th October 2023 for the 91-Day bill, 25th January 2024 for the 182-Day bill, and 25th July 2024 for the 364-Day bill.