Nigeria’s high inflation rate has permitted the presence of Negative yield in the Fixed Income market. Nonetheless, the Central Bank of Nigeria’s (CBN) Treasury Bills for a 1-year tenor were oversubscribed by a whopping 527% in June.
A bond produces a negative yield when the price investors pay for it is more than the interest and principal they will get back over its life. To demonstrate, if you purchased a Treasury note that pays 2% interest to maturity and the average inflation rate over the period is 4.5%, your real return is a -2.5%. There are various distinct reasons for the purchase of negative-yielding bonds such as asset allocation, safe-haven assets, currency gain and deflation risk. Nonetheless, the data shows that Nigerian investors are actively participating despite the negative-yielding bonds.
The CBN Treasury Bills for a 1-year tenor worth N27.86 billion, which was auctioned on Wednesday, 15th of July 2022, accumulated a total subscription of N175.05 billion, representing 627% of the intended capital raise. Nigeria’s high inflation rate stood at 16.82% in May 2022. While the stop rate for the 364-day T-bills was 6.07%, indicative of a negative yield of 11.63%.
The apex bank recorded a total subscription of N178 billion for the three tranches of T-bills auctioned as against the N34.8 billion intended offer. This represents a 511% subscription rate, while the final aggregate allotment was N34.7 billion. Further breakdown of the report showed that the 91-day treasury bill recorded a subscription rate of 27%, while the 182-day bill was undersubscribed at 54%.
Recall, that the Central Bank of Nigeria changed to a more hawkish monetary stand in its last monetary policy meeting as the MPR was raised to 13% after adopting an expansionary policy direction in the last two years. Although the apex bank’s interest rate hike was the simplest way to reduce inflationary pressures in the country, some scholars and experts questioned whether it would have the desired effect.
The oversubscription of 182-day and 364-day treasury bills (NTBs) demonstrates that Nigerians continue to be interested in fixed-income securities, especially considering the high level of volatility in various investment portfolios.
Although the Nigerian stock market has printed impressive returns year-to-date, Government securities are more guaranteed and safer for investors. The recent rise in interest rate presents more incentives for more subscriptions.

Despite negative yield, investors oversubscribe CBN’s June 2022 T-Bills by 527%

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