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Wednesday, March 22, 2023

Investors Balk at Buying Debut Nigerian Special Bonds

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Nigeria’s first issuance of special bonds created to boost liquidity for the nation’s banks left investors disappointed after yields on longer-dated debt securities surged.

The Central Bank of Nigeria (CBN) offered about N4.1 trillion ($10.5 billion) of 81-day special bills to lenders in the form of promissory notes at 0.5 percent on Thursday, according to Chapel Hill Denham Securities.

That’s much better than the zero interest the banks usually get for parking excess cash with the regulator.

But, a day earlier, the central bank sold N38.7 billion of one-year Treasury bills at a yield 3.2 percent — more than 20 times higher than the rate from the previous auction.

By doing so, the special bonds were effectively out-priced for those wanting to trade them on the secondary market.

“There is no point in buying it — it’s way lower than one-year T-bills,” said Adetayo Adeyi, a portfolio manager at Asset Resource Management. “Clearly no institutional investor will go and buy it.”

Nigeria’s central bank introduced the bills to better manage liquidity, while increasing the amount of capital deposit-taking institutions can use to extend credit to critical sectors.

This measure, combined with other monetary policy tools, is expected to help Africa’s biggest oil producer exit its second recession in four years by early 2021, according to Governor Godwin Emefiele.

MoneyCentral had earlier exclusively reported that the bills are to help the securitization plans of Emefiele in his bid to unwind the bloated balance sheet of the CBN.

The higher T-bills rate signals the regulator is trying to normalize interest rates, said Adeyi of Asset Resource Management.

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