364-Day T-bill at 0.15% Yield: How Low Can It Get?

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Thursday, November 26, 2020   /10:16 AM / by United Capital Research / Header Image Credit: Business AM Live

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Yesterday, the CBN conducted a primary market auction, with N150.6bn worth of treasury bills on offer across the 91-, 182- and 364- Day tenor. Stop rates trended lower as the 91-day, 180-day and 364-day papers closed at 0.02% (previously 0.035%), 0.19% (previously 0.15%) and 0.15% (previously 0.30%), in that order. Nevertheless, demand was high, with the three tenors being oversubscribed 2.8x, 2.9x and 3.0x, respectively, compared with 5.1x, 2.3x and 3.8x at the last auction.


For context, the 364-day paper, at 0.15% yield, implies that a N1.0m investment in T-bills will yield a meagre return of N1,500 in a year, ridiculously low compared an equal investment in the more-risky equity market, which currently has an average dividend yield of 5.4%, implying a N54,000 return on the same N1.0m Investment without taking into account capital gains (or loss). Notably, fundamentally sound stocks yield considerably higher dividends than the average; for instance, ZENITH's forecast dividend yield is estimated at 11.5%, implying a return of N115,000, bar capital gains. 


Taking a cue from the market's reaction to the last NTB auction, we expect sustained bullish bias for equities in the coming weeks, albeit alongside profit-taking. The MPC's recent decision to hold the benchmark interest rate also supports demand for equities market. Also, Bond markets have been mildly bullish with slight buying interest observed on the short end of the yield curve, pulling the average bond yield down1bps from Friday. We expect bond yields to be depressed further in the coming week.


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