Nigeria’s slowing inflation leaves investors little to cheer

For the first time in two years, Nigeria’s inflation rate slowed for the second successive month in May. The slowdown however does not provide much relief to fixed income-investors reeling from a negative real return.

While the slowdown is good news for investors as it tends to increase real return on investment, the decline in Treasury Bills (T-bills) rates, which has dropped marginally in the last three auctions to June 16, leaves investors with little to cheer.

After hitting more than 17 months high at 9.75 percent on May 14, yields on the Federal Government risk-free T-bills dropped marginally to 9.4 percent on June 16, as compiled from Nigerian Treasury bills primary market auction results.

The recent slowdown in treasury bills rate on account of increased demand for the risk-free government instrument is responsible for the fewer benefit investors will be enjoying from the ease in the inflation rate.

While investors bid at a rate as high as 10 percent for the 91-day bill, 12 percent and 10.8 percent for the 182-day and 364-day bills, respectively, the Central Bank of Nigeria settled at 2.5 percent, 3.5 percent and 9.4 percent, respectively.

Stop rates for the 91-day and 182-day bills have remained unchanged for most of this year, but the 364-day bill has been declining since the third week of May.

According to Ayorinde Akinloye, investment research analyst at United Capital, the high demand that is chasing after the bills the CBN has been issuing is the reason behind the drop in rates.