Investors in money market instruments are facing lower returns following a sharp decline in Treasury Bill yields amid increased liquidity in the economy.
In a clients’ update signed by Investment Advisory Manager Chimwemwe Matemba dated February 20, investment firm Bridgepath Capital Limited said it has observed a general downward trend in market interest rates over the past few weeks, largely driven by easing yields on government securities.
According to the firm, the 91-day Treasury Bill rate has dropped from 16 percent to 12 percent, while the 182-day Treasury Bill has declined from 20 percent to 16 percent
The adjustment has led to a significant shift in the short-term interest rate environment that underpins returns on money market investments.
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According to Bridgepath Capital, the fall in yields has been compounded by lower allotments of Treasury Bills against applications and the absence of Treasury Note issuances for nearly two months.
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“The postponement of the Monetary Policy Committee (MPC) meeting to determine the policy rate has also contributed to uncertainty in the market. Collectively, these developments have contributed to the easing of yields across the money market,” stated the advisory.
It said the development means rates currently being offered on money market investments have adjusted in line with broader market conditions.
However, the firm emphasised that the changes are market-wide and not specific to individual portfolios.
“Despite these developments, money market investments remain a secure and reliable option for capital preservation, liquidity, and steady income generation,” it adds.
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Investor Benedicto Nkhoma attributed the development to excess liquidity in the banking system combined with reduced Government borrowing at higher yields.
“Recent Treasury Bill auctions have shown high investor participation, but significantly lower allotments by Government and declining short-term yields. This means there is more money chasing fewer safe investment instruments,” Nkhoma said.
Nkhoma said investors should therefore expect lower returns from traditional low-risk instruments such as money market funds and Treasury Bills compared to the past 12 to 18 months.
However, he cautioned investors against reacting impulsively to the changing environment.
Beyond immediate investor concerns, Nkhoma described the falling yields as part of an important economic transition, saying that easing money market rates generally signal improved liquidity conditions, reduced urgency for Government to borrow at expensive rates and potential stabilisation in interest rate expectations.
However, he said sustainability will depend on broader macroeconomic fundamentals, including inflation trends, exchange rate stability, fiscal discipline and Government debt management strategy.
In recent months, government has either rejected expensive long term Treasury Bills offers on the auction market or engaged in selective borrowing, a move seen as a deliberate step aimed at reducing borrowing.
Results from Reserve Bank of Malawi’s (RBM) Treasury Bills auctions held on the 23rd and 24th February saw government only accepting K60.9 billion out of the K350.3 billion applied for.
