As the equity market continues with its bearish trend, investors are scrambling for safety leading to treasury bill yield tipping into negative territory. A review of the Nov 18, 2015 market data released by the FMDQ shows that Treasury bills maturing on Dec. 10 2015 and Dec. 17 2015 are being offered at negative-0.03% and -0.19% respectively. This is the first negative yield in Nigeria ever or as far as I can remember. Short-term debt trading at negative yields has essentially been unheard of in Nigeria's financial and economic history. Because of the downward trend in the market, investors are getting increasingly pessimistic and are becoming more concerned about capital preservation rather that capital appreciation, hence the flight to the safety of TBills. As the flight to government bills increases, so does the demand which in turn drives yields lower and lower.
In USA, negative yield on treasury bills made headlines for the first time in 2008 during the financial crisis and has cropped up at times of market stress. In Germany, the yield on the two-year government bond traded below zero in 2014 as investors in that country sought safety amid slowing growth. Negative yields are no longer uncommon in countries like Switzerland, the Netherlands, Austria and Denmark
Implications of Negative Yield
A negative yield implies a cost to an investor because earning a negative yield means the price paid for a bond or TBill is above par even though the bond will be redeemed at par. Investors' motivation to pay a cost to own a government bill is because of the flight to safety and the perception that such bills are risk free. Another reason for paying the cost is that investors see the bill as an alternative to cash but in Nigeria, fixed deposits in banks attract some interest rate that negates this reasoning.
As it stands, no one knows how far and for how long the negative yield will remain as it depends to some extent on how far investors can go in putting pressure on yield with their demand for government securities as a lifeline.