The Central Bank of Nigeria (CBN) has released the auction calendar for Q4 2015 and it shows ample supply of the short term debt instrument.4th Quarter 2015 NTB Issue Programme
Very soon investors will get ready to complete their bidding forms and one of the issues they will grapple with is what interest they should submit their bid at. If you look at previous auctions, you will discover that they were done at different rates for different auctions and for different maturities. The question then is what drives interest rate. In other words, what should investors pay attention so as to get a better inkling of the direction of interest rates. The answer to this is to pay attention to the determinants of interest rate.
Determinants of Treasury Bill Interest Rates.
Many factors affect Treasury bill interest rates in general, as well as rates for specific issues of Treasury securities, in particular. Among the factors that may have general effect on Treasury Bills include:
Demand for risk-free fixed-income securities like Treasury Bills affects interest rate on such securities. In a situation where investors have concern for default or liquidity, the tendency is usually for such investors to fly to safety. When this flight occurs, investors usually fly to Treasury Bills given their characteristics for safety and liquidity. This increase in demand increases the price for the security thereby pushing down the rate. This can be seen in the present day stock market in Nigeria where more and more people are buying Treasury Bills because equities are under performing.
Therefore, when bidding for Treasury bills, look at such things as those enumerated above and you will be better positioned to know at what interest to bid. Another guide is to look at the YTM or the Bond Equivalent Yield of existing Treasury Bills with similar days to maturity (DTM) of the one being auctioned. For example the 91 day bill to at about 11.9%, 182 day at about 14.5% while 364 day bill should go for about 15.6%