Here is what to do in current declining interest rate environment

by | May 14, 2018 6:03 pm

Yields in the money market space and treasury bills in particular have continued to see a decline for the fourth consecutive week, leaving investors with little or no clue on alternatives to invest in or where to get favourable returns.

This sustained decline has been caused by a number of factors, including a reduction in the rate, volume sold and the frequency of sales of open market operations (OMO) treasury bills by the Central Bank of Nigeria (CBN).

Inflation has continued its downward trend since late last year where it peaked at about 18 percent.

According to the Nigerian Bureau of Statistics (NBS), inflation currently stands at 13.34 percent (March 2018) down from 15.13 percent in January 2018, with the potential to remain on this trajectory.

As a result of this, the CBN has hinted at a more accommodative posture by taking actions to reduce interest rates in the market.

However, here are some ways to maximize returns on your investments despite the downward trend in interest rates;


Position for OMO auctions:

One interesting trend analysts have pointed to is that rates at the OMO auction typically close higher than Treasury Bills of corresponding maturity dates in the secondary market and we believe this presents an opportunity to get more value for your investments.

OMO auctions are conducted at the discretion of the CBN, and announcements are made within a short period during trading hours.


Be on the lookout for Commercial Papers:

Commercial Papers (CP) present opportunities to lock in at higher returns in a low rate environment. Nigerian Breweries CP is currently on offer and others are in the pipeline.

Invest in a money market mutual fund

Money market funds are an excellent way to maximize returns on your short term investments. They are safe, provide easy access to your funds, while providing maximized returns on your investment. With the money market fund, you are also able to position for other investment opportunities, bearing no penal charges upon liquidation.

Some major money market funds now available for investors include the Stanbic IBTC money market fund, FBN money market fund, ARM money market fund, Abacus money market fund and the AXA Mansard Money Market Fund among others.