Pension funds flock to T-bills in hunt for higher returns - Businessday NG

Source: Businessday NG
Author: Modestus Anaesoronye

Nigerian Pension Fund Administrators (PFAs) are piling into government Treasury Bills at a record clip, in search of higher yields.

The PFAs' exposure to Treasury Bills jumped 42.5 percent (or N121.6 billion) to N407.62 billion at the end of March from N285.97 billion in February 2024.

The fund managers had grown their stake from N214.58 billion in December 2023 to N221.87 billion in January 2024; before raising it further to N285.97 billion in February.

Analysts at Pension Fund Operators Association of Nigeria (PenOp), said pension funds have been actively seeking higher returns on investment, with a significant focus on Treasury bills (T-bills) and bank deposits.

They noted that this strategic move comes in response to the record hike in monetary policy rates this year, which have prompted pension funds to bolster their holdings in T-bills.

"In March alone, pension funds allocated a substantial N407.62 billion of their assets into these investments, reflecting pursuit of higher returns offered by T-bills," Aguda Oguche, chief executive officer, PenOp, said.

The yields on 3-month T-bills have reached 16.52 percent, while the yields on 12-month T-bills have climbed to 24.91 percent.

"These heightened yields serve as a compelling incentive for pension funds to channel more capital into T-bills, as they seek to optimise returns and secure the financial future of their members," Oguche said.

Read also: Nigeria offers record N1trn Treasury Bills as interest rate set to jump

Yields in the Treasury Bills market increased at a much higher rate to 17.67 percent as at March 26, 2024 from 6.29 percent at the beginning of the year.

This follows the unprecedented rise in the monetary policy rate by 600 basis points so far in the year to 24.75 percent, thereby pushing up yields across markets.

The FGN Bond and Treasury Bills markets experienced a significant yield rise in 2024. The average yield in the FGN Bond market increased from 14.13 percent on the first trading day of the year to 19.29 percent as at March 26, 2024.

T-Bills are short-term government-backed securities issued by the CBN. They are issued when the government requires a short-term loan of funds. They can reach maturity in 364 days. T-Bills are sold at a price lower than their face value.

At the end of fourth quarter of 2023, data from the National Pension Commission shows that out of the N18.35 trillion pension assets, FGN Securities including bonds, sukuk and other agency bonds accounted for N11.92 trillion, where treasury bills was 1.17 percent of the total share.

The Central Bank of Nigeria (CBN) said it will issue a total of N1.64 trillion treasury bills in the second quarter of 2024 as the same amount will be maturing between March and May, this year.

Africa's largest economy's big bank disclosed this in Nigeria's treasury bills programme calendar, released on its website on Friday, 1,March, 2024.

A breakdown of the Treasury Bills programme to be issued in the next three months, which represents the amount that would mature during the same period, consists of a total of N414.29 billion for 91-day tenor, N43.75 billion for 182-day tenor and N1.18 trillion for 364-day tenors.

The CBN issues Treasury Bills twice a month to help the Federal Government fund its budget deficit, support banks in managing liquidity in the system and curb inflation.

Nigeria's Central Bank recently raised the key interest rate by 200 basis points to 24.75 percent from 22.75 percent in February 2024, to rein in inflation and stabilise FX.

The apex bank had increased the interest rate by 400 basis points to 22.75 percent at the meeting before the last one.