somehow:


Has the payment of interest upfront always been so?

For me, yes.

It's actually very brilliant.

EgunMogaji2:


For me, yes.

It's actually very brilliant.

About 5 years ago, I saw the option of taking profit at maturity or from the start, hence the question.

This is not a good news at all. A certain small million wey suppose dey bring in Consistent 12.5 percent for payment of certain bills will now be just a paltry 8 percent?

GAZZUZZ:
egunmogaji2 good news or bad?

Bad news for retirees like me who banked on the higher rates. This is still within budgeted range though.

It could be good news if market price of things that we buy adjusts, but we know it won't. Example, let's say you were charging N25K for oil changes because clients could afford it. You won't necessarily reduce it to N20K because your clients are earning less now.

If Nigeria keeps screwing around, then I'll just move my investment back to the US. Shikena.

Or I'll process Canada visa

FGN Savings Bond

https://www.nairaland.com/3658395/fgn-savings-bond

https://www.dmo.gov.ng/fgn-bonds/savings-bond

prof2007:
The Central Bank of Nigeria (CBN) crashed average stop rates of treasury bills at the primary market to single-digit; to 8.93% from 10.48%, Business Post can report. As anticipated, the exercise was oversubscribed, as investors staked a total of N555.98 bn on the N125 bn T-bills brought to the market by the apex bank.

CBN had offered investors N4.38 bn worth of 91-day bills, N12.92 bn of 182-day bills and N107.94 bn of 364-day bills. However, when subscriptions were analysed, the bank had N58.43 bn staked on the 3-month instrument, N57.85 bn on the 6-month and N439.70 bn on the 12-month tenor. At the end of the exercise, CBN allotted N4.38 bn of 91-day bills at 7.80%, N12.92 bn of 182-day bills at 9.00% and N107.94 bn of 364-day bills at 10.00%.

When compared with previous session held October 30, 2019, stop rates of the 91-day bill dropped from 9.5%, the 182-day bill from 10.45% and the 364-day bill from 11.50%. Business Post reports that if the demand for treasury bills continue, stop rates would further be lowered by the central bank at the next exercise fixed for November 27, 2019.

As stated in our earlier report, investors will continue to look at the primary market for treasury bills as a result of the recent directive of the CBN on the sale of its OMO bills (READ IT HERE: https://businesspost.ng/economy/rush-for-t-bills-to-weaken-rates-at-wednesdays-pma/). This will continue to drive the rates lower until there is an inevitable need for another hike to trap investors.

SOURCE (abridged): https://businesspost.ng/economy/cbn-crashes-treasury-bills-rates-to-single-digit/amp/

Lukmanraji:
Well, after reading so much comments about the story.

I will like to contribute my 1 cent to the discussion.

Do you know that the federal government issues Treasure Bills and other short term financial instruments in order to mop up excess liquidity in the economy.

That is to say, when the government issues Treasury Bills or Treasure Certificate, people will subscribe to it buy buying some portion. In that case, they purchase the instrument by paying the government.
By doing so, it's a strategy by the monetary policy authority to control excess

Wow , but since the govt will pay them back their money later , won't that still bring back that same liquidity that the govt is trying to mop up ?

ntyce:


I expect the MPR to to slashed at the next committee meeting.

With borders closed, increased taxation, and staple commodity prices on the rise (rising inflation)? I doubt that bro! A raise is more likely than a slash.

chloride6:


The MPR is very useless, very very..

I hear you. In as much as TB rate reduction may increase bank deposits, banks will never lower their rates if inflation is on the rise!

VicThory:
Is it for good or bad?


I don't understand

Good for borrowers, not too good for investors.

Good for businesses and the economy, bad for high earners that’ll rather save for the rainy days.

studentofTruth:


I hear you. In as much as TB rate reduction may increase bank deposits, banks will never lower their rates if inflation is on the rise!

What are you talking about?

Rate are determined by supply and demand and have nothing to do with inflation...

The primary factors affecting interest rate are deferred consumption, credit ratings and liquidity...

FindingNigeria:
This will suffer low patronage.
We will move to money market and mutual funds.

And you think mutual funds won't drop?

DenreleDave:


Why are you asking me

Nothing

I'll like to know.

Anyways, am a Final Year Banking and Finance Student from Lagos State University.

Meh, this hard ooo

chloride6:


What are you talking about?

Rate are determined by supply and demand and have nothing to do with inflation...

The primary factors affecting interest rate are deferred consumption, credit ratings and liquidity...

Son, no bank will lend businesses money at a rate below inflation rate, unless it's a government-subsidized loan scheme!

This has nothing to do with text books.

urahara:


Wow , but since the govt will pay them back their money later , won't that still bring back that same liquidity that the govt is trying to mop up ?

That's another Monetary Policy called Expansionary Monetary Policy.

When the government pays back their capital and interest on maturity, the government is technically buying back from the investors. Which means, when the government buys, he pays the seller.

The amount paid to the investor is a means of increasing the flow of credit or liquidity in the economy in order to get the economy running.

This policy is used to fight an economy situation such as recession.

Lukmanraji:


That's another Monetary Policy called Expansionary Monetary Policy.

When the government pays back their capital and interest on maturity, the government is technically buying back from the investors. Which means, when the government buys, he pays the seller.

The amount paid to the investor is a means of increasing the flow of credit or liquidity in the economy in order to get the economy running.

This policy is used to fight an economy situation such as recession.

Sure, aka quantitative easing. ECB is still on it!

I have gone through the whole analysis in this thread, and i must say that few who commented here have shown a good grasp of the subject matter.

There is no developed economy in the world where government TB yields as much as 10%. No economy grows with a high yielding government securities. This is because high yield TBs are counter productive in themselves.

Why will I invest in a very risky business that will give me, say 16%, when i have a risk free investment yielding 11%? Do you get the drift.

I can borrow #5,000,000.00 from my company cooperative at 5% per annum and invest same in TB at say, 11.5%. This means, in a year, I will make #325,000.00 (#575,000.00 - #250,000.00) without doing anything. This is financial arbitrage.

Thus, there will be no incentive for me to take risk by venturing into the real sector.

This is just in summary why high yielding TB is bad for the economy.

It could be much more than this.

studentofTruth:


Son, no bank will lend businesses money at a rate below inflation rate, unless it's a government-subsidized loan scheme!

This has nothing to do with text books.

One I am not your Son,

2. Your Lending rates are determined by a host of factors eg risk tiering, prevalent t Bill's rate.Banks dont care about inflation..Because inflation doesnt affect profit..

Factors that affect profit include the Weighted Average Cost of Capital (WACC) of the bank..The bank will first attempt to fill in the best risk adjusted assets eg Tbills and bonds up to the regulatory cap and liquidity requirements, and then deploy the rest of their assets to credit facilities..

Even if inflation is 100%, provided the banks is borrowing funds at a WACC of 3% and is giving loans at a risk adjusted rate of 4%, the bank is fine because the bank is making money.

The only way to avoid inflation is to buy TIPS or abandon the currency all together..

ntyce:
Good news

What is good about what you just read?? Do you understand the meaning of what you just read? Or you are one of those zombified monikers who see everything good with this government

I want 200 persons ( including myself) in this forum who can contribute #5,000,000.00 each, so that we go into business of manufacturing.

None of the 200 persons will be involved i n the management of the business. We will, through a good professional firm, engage good hands to run the firm. But we will be involved in the decision making process directly or by proxy.

If you interested just indicate by quoting and typing I am in.

As soon as we have the required number, we will arrange for a meeting in any location agreed by all in Lagos.

This is a modification of crowdfunding which obtains in developed climes.

Lukmanraji:


Nothing

I'll like to know.

Anyways, am a Final Year Banking and Finance Student from Lagos State University.

Really, meaning u going for service in February first batch too Abi

ntyce:
Good news

I guess u don't do financial investments. Guy its bad news for we who have invested in bills. Pmb is just worse than the devil himself

CBN as reduced the interest rate on treasury bills when it's the safest investment that guarantees your interest and deposited money even at times up front payment of interest nawa oooo...9ja which way

Bad news for lazy investors and good news for the real sector and equity market. It may boost demand for the bond market too in the short term, if the apex bank does not reduce the yields.

Meanwhile, the cheapest stock to buy now is Zenith bank with the highest dividend yield.

Fuckgovt:
I guess u don't do financial investments. Guy its bad news for we who have invested in bills. Pmb is just worse than the devil himself

Guy, 'have' is different from 'will'. Your return remains intact.

So which other investment option do we have?

ursullalinda:
Pls someone should break down in a lay man's language

It's good for the economy, the average profit margins on businesses is around 17%, combined with all business risk. The government has been selling treasury bills at 12-14% interest rate. Treasury bill is a low risk investment, as long as the country is not destroyed an investor will always get his money with interests back.

Now, it makes more economic sense to buy treasury bills with a profit of 14% guaranteed than to use my capital to build a factory with a possibility of 17% plus much risk (I may not even get 2% depending on how the risk play out)

Lowering interest rate to single digit will force an investor who wants more money to produce goods and services.

DenreleDave:



Really, meaning u going for service in February first batch too Abi

Hopefully cos our exam is coming up next month

Fuckgovt:
I guess u don't do financial investments. Guy its bad news for we who have invested in bills. Pmb is just worse than the devil himself

Awoo88:

What is good about what you just read?? Do you understand the meaning of what you just read? Or you are one of those zombified monikers who see everything good with this government

Go back to economics 101 to understand why Tbills should pay the lowest in investments

omerukokwuru:
This means that the interest you will get at the maturity of the Tbills will be below inflation rate so right from on set you are loosing money.

how is an investor loosing money ?

I think its rather appropriate saying u get to assume a lower rate of returns IF u deem investing.

Meanwhile, your initial capital outflow still safe

somehow:


Has the payment of interest upfront always been so?

Yes, that has ever been TB doctrine