Treasury Bill Rate Research Articles

Non-Resident Holdings of Domestic Debt in Nigeria

Foreign holdings of domestic debt instruments in Nigeria have been increasing. Using data over 2007M1-2019M1, we show that, on average, global factors (global interest rates, oil prices) seem to carry more weight than domestic factors (treasury bills rate and domestic risk) in foreign portfolio invetsors’ decisions in Nigeria. Specifically, we show that foreign participation is, in the long run, positively correlated with oil prices and profitable rates of return on local-currency instruments, but negatively correlated with exchange rate depreciation pressures. In the short run, oil prices, opportunity cost of funds and perception of Nigeria-specific risks also play a role. These results highlight the volatile short-term nature of such flows and call for a package of policy reforms to attract longer term direct investments.

Revisiting the Dynamic Linkages of Treasury Bond Yields for the BRICS: A Forecasting Analysis

We examined the dynamic linkages among money market interest rates in the so-called “BRICS” countries (Brazil, Russia, India, China, and South Africa) by using weekly data of the overnight, one-, three-, and six- months, as well as of one year, Treasury bills rates covering the period from January 2005 to August 2019. A long-run relationship among interest rates was established by employing the Vector Error Correction modeling (VECM), which revealed the validation of the Expectation Hypothesis Theory (EH) of the term structure of interest rates, taking into account long-run deviations from equilibrium and inherent nonlinearities. We unveiled short-run dynamic adjustments for the term structure of the BRICS, subject to regime switches. We then used Markov Switching Vector Error Correction models (MS-VECM) to forecast them dynamically during an out-of-sample period of May 2016 through August 2019. The MSIH-VECM forecasts were found to be superior to the VECM approaches. The novelty of our paper is mainly due to the exploration of the possibility of parameter instability as a crucial factor, which might explain the rejection of the restricted version of the cointegration space, and on the dynamic out-of-sample forecasts of the term structure over a more recent time span in order to assess further the usefulness of our nonlinear MS-VECM characterization of the term structure, capturing the effects of the global and domestic financial crisis.

Spillover effects of the US monetary policy normalization on African stock markets

PurposeWe study the contemporaneous effects of US monetary policy normalization on African stock market using panel data from six African countries.Design/methodology/approachDaily data from May 1, 2013 to December 31, 2018 were used in order to accommodate the announcement effects since the US monetary policy normalization announcement was made in May 2013, while the rate hike was in December 2015. The study used the FE, RE and PMG models.FindingsThe results revealed that US 10-year bond yield and Treasury bill rate shocks negatively affect stock prices in Africa. S$P500 shock positively affects African stock prices.The result revealed that the integration of African financial market to the global financial market is a major source of vulnerability. The finding that US Treasury bill rate is a major depressant of the African stock prices reveals the short-termism of foreign polio inflows into African economies.Originality/valueWe provide inexorably insight into the interplay of financial systems globally. It can be useful for the purposes of generalization in developing economies in the shape of African countries. More so, this study could be replicated in another economic bloc or region with the aim of further exposing the far-reaching spillover effects of the US monetary policy normalization.

A Bayesian Approach for Dynamic Variation of Specific Sectors in Stock Exchange: A Case Study of Stock Exchange Thailand (SET) Indexes

This paper aims to investigate the identification of sectors of stock exchange that were positively or negatively driven by fundamental monetary tools. A Bayesian approach for dynamic model averaging (DMA) algorithm is analyzed and implemented to deliver the results for identifying what actually drives specific sector of stock exchange, where the posterior inclusion probability is crucial quantity for this investigation. Stock Exchange Thailand (SET) indexes was used as a case study for this work. The predictors used in this paper are: borrowing rate: BR, policy rate: PR, treasury bill rate: TBR, government bond yield: GBYLT, minimum overdraft rate: MOR, minimum loan rate: MLR, minimum retail rate: MRR, discount rate: DISR, savings rate: SAVER, deposit rate: DEPR and lending rate: LENDR. These factors are considered as the most important monetary policy tools from Bank of Thailand. The empirical results demonstrated that each SET index sector responses to those economic variables differently. Some of them are not actually related for specific point of time; some other times, however, they affect SET indexes. Filtered time-varying parameters allow us to indicate the relationship between stock price return and interest rates. According to statistical evidence, we found that the relationship is as of the time-varying characteristic and is unable to absolute identify whether it is positively or negatively related to stock price return for each sector. The impact of a sector on SET indexes depends on a period of time and can also be considered by using seasoning parameters.

Arbitrage Pricing and Investment Performance in the Nigerian Capital Market

This paper applied the multi factor Arbitrage Pricing Theory to explore the relationship between investment performance and selected macroeconomic variables in the Nigerian Capital market. Thus, the general purpose was to test the applicability of the Arbitrage Pricing Theory on investment performance in the Nigerian Capital market while the specific objective was to examine the effect of inflation rate risk, interest rate risk, exchange rate volatility risk, money supply rate of change, real gross domestic product and treasury bill rate on investment performance in the Nigerian Capital market. We extracted thirty-year (1988-2017) panel data from Central Bank of Nigeria Statistical Bulletin and published annual reports of five quoted companies in the Nigerian Stock Exchange for the dependent variable earnings per share which is proxy for investment performance. Five models were specified to express the relationship between the independent variables and the dependent variable for five quoted companies in the Nigerian Stock Exchange. The models were estimated using the Ordinary Least Square Regression analysis and the global utility of the models were evaluated. On the basis of our analysis, we found that investment performance for the Nigerian Capital market does not toe the line of the objectives of the Arbitrage Pricing Theory as the selected macroeconomic risk factors not strongly explain investment performance. We therefore recommended vibrant and stable macroeconomic policies aimed at managing market realities in the capital market, good governance free of corruption, interest rate stability,, among others as panacea for investment performance in the Nigerian Capital Market.

The monetary policy and price stability nexus: The Nigerian case (1981-2016)

The study evaluated the effects of monetary policy on price stability in Nigeria for the period 1981-2016. The consumer price index was used as the dependent variable while money supply, interest rate, exchange rate, Gross Domestic Product (GDP) and treasury bill rates were the independent variables. The research made use of secondary data obtained from Central Bank of Nigeria Statistical Bulletin and World Bank Development Indicators. The study employed Auto Regressive Distributive Lag (ARDL). The unit root test showed that all the time series data were not stationary series. The result showed in the short-run and long-run, exchange rate, money supply, GDP and open market operations have significant effects on price stability in Nigeria while interest rate is significant only in the short-run. Based on the findings, the study recommended among others, that Central Bank of Nigeria increase interest rates during inflation in order to control money supply and consequently inflation. Government should take policy actions swiftly so as to reduce lag problems. Also, monetary policy alone cannot be used to maintain price stability. It should, therefore, be supplemented by fiscal measures, non-monetary and non-fiscal measures.

Foreign Portfolio Investment Response to Monetary Policy Decisions in Nigeria: A Toda-Yamamoto Approach

This paper examined the response of foreign portfolio investment to Monetary Policy decisions of the Central Bank of Nigeria using monthly data spanning January 2007 to December 2018. The study adopted the Toda-Yamamoto Causality model and Generalized Impulse Response Function for analysis. The results showed that changes in monetary policy stance could only impact the behavior of foreign portfolio investment with 6-month lag and with marginal impact. This implies that monetary policy could still be effective even if the CBN decides to lose policy stance without losing significant capital flight. The conclusion from the findings is that monetary policy is just a signaling instrument for portfolio investors in Nigeria because it influences foreign portfolio investment through the Treasury bill rate rather than through MPR and CRR. The marginal response of investment due to changes in policy rate from the GIRF validate the TY results by indicating that monetary policy rate changes on its own may not be what investors are concern about, rather the expectation of the rates future path. The cash reserve ratio as a monetary policy tool does not seem to exert any impact on foreign portfolio investment.

Measuring Dynamic Return and Volatility Connectedness among Nigerian Financial Markets

This study employs the connectedness measure of Diebold and Yilmaz (2012, 2014) to examine the intensity of connectedness among the Nigerian financial markets for the period January 2000 to December 2018. The study used all shares index, Treasury bill rate and Naira/USD official exchange rate to measure stock market, money market and exchange rate market, respectively. The study found connectedness among the Nigerian financial markets to be highly time-varying and appear to be higher during the period of high depreciation of the naira which coincides with the period of falling oil prices and domestic economic meltdown of 2014 and 2016, respectively. This shows that, relative to external shocks, connectedness among financial markets is likely to get amplified during the time of domestic turbulence. The paper, therefore recommends that policymakers should look inward whenever policy discuss revolves around the increasing integration of financial markets to save the economy from aggravation of contagion.

The Implications of Interest Rates on Private Saving with Reference to Myanmar

The private saving is one of the fundamentals for economic development and growth of the country. Thus, the main purpose of this paper is to analyze the effect of interest rates on private saving in Myanmar over the period from fiscal year 2013-14 Q1 to 2018 Q2. This study investigates the private saving of Myanmar’s banking sector which includes twenty seven private commercial banks, four State-owned banks and thirteen foreign bank branches. The quarterly data are obtained from secondary data sources collected from quarterly Financial Statistics Bulletin and annual reports of Central Bank of Myanmar, Statistical Year Books and Selected Monthly Economic Indicators published by CSO, Myanmar, as well as websites from commercial banks to investigate the effect of domestic interest rates on private saving. Inferential analysis including multiple regression analysis and correlation analysis as well as descriptive analysis are applied to examine the effect of domestic interest rates on private saving with the use of Statistical Package for Social Sciences (SPSS) software (version 25). The findings of the study reveal that all independent variables except from Treasury bill rate have significant impact on the savings while inflation and fixed deposit rate have adversely impact on savings. Among all independent variables, saving deposit rate is the most influent variable on attracting private saving. Therefore, the study concludes that policies for ensuring to adopt flexible interest rates structures and for maintaining reasonable inflation rate depending upon the macroeconomic conditions of the economy would be critical to mobilize private saving in Myanmar.

Determinants of the Size of Private Sector Credit Disbursement in Ghana

The paper examines the antecedence of the size of private sector credit disbursement in Ghana using symmetric and asymmetric ARDL processes. We find that the treasury bill rates have both a direct and an indirect impact on the amount of credit channelled to the private sector with positive shocks dominating the stimulating effect of the treasury bill rate. Similarly, negative shocks in the average lending rates have a detrimental effect on the credit to the private sector which supports the view that banks use interest rates to ration credit. Also, the saving rates have a direct and indirect effect on private sector credit but positive shocks in the savings rate have a detrimental effect on the amount of credit to the private sector. Moreover, we found a dominance positive effect of the shocks in foreign currency deposits on private sector credit disbursement. Finally, a rise in crude oil prices induces private sector allocation in Ghana even though the effect of oil prices on credit appears mixed.

Economic Performance and Financial Conditions Index Nexus: Evidence from Selected Sub-Saharan African Countries

The purpose this study is to construct a financial conditions index for six sub-Saharan African Countries; namely, Nigeria, South Africa, Namibia, Mauritius, Kenya and Ghana, within the dynamic panel data framework using annual data covering from 2009 to 2018. The variables included in the construction of the index are treasury bills rate, real effective exchange rate, interest rate spread, credit to private sector ratio to Gross Domestic Product and value of stocks traded. The weights attached to these variables in the construction of the financial conditions index are estimated using the dynamic fixed effects coefficients, while the predictive power of the constructed index is evaluated within the dynamic panel General Method Moment framework. The output of analysis found that while real GDP per capita growth is not significantly related to real effective exchange rate, interest rate spread and credit to private sector ratio to Gross Domestic Product, it is significantly related to treasury bills rate and value of stocks traded. Thus, the effectiveness of monetary policy in the selected sub-Saharan countries depends only on money market and capital market conditions. Also results show that in Namibia, Ghana, Kenya and Nigeria, the financial conditions have been tighter than the prevailing macroeconomic conditions, while South Africa’s financial conditions have been looser than its prevailing macroeconomic conditions. However, Mauritius’ financial conditions have been neither tighter nor looser than its prevailing macroeconomic conditions. In the light of the above, the researchers suggest that the focus of monetary policy in the selected sub-Saharan countries has been to reduce inflation.

Non-Resident Holdings of Domestic Debt in Nigeria: Internal or External Driven?

Foreign holdings of domestic debt instruments in Nigeria have been increasing. Using data over 2007M1-2019M1, we show that, on average, global factors (global interest rates, oil prices) seem to carry more weight than domestic factors (treasury bills rate and domestic risk) in foreign portfolio invetsors' decisions in Nigeria. Specifically, we show that foreign participation is, in the long run, positively correlated with oil prices and profitable rates of return on local-currency instruments, but negatively correlated with exchange rate depreciation pressures. In the short run, oil prices, opportunity cost of funds and perception of Nigeria-specific risks also play a role. These results highlight the volatile short-term nature of such flows and call for a package of policy reforms to attract longer term direct investments.

Modeling Macroeconomic Variables Using Principal Component Analysis and Multiple Linear Regression: The Case of Ghana’s Economy

The paper sought to model the relationship between GDP and 29 macroeconomic variables in Ghana using the Principal Component Analysis and multiple linear regression. Economic data with 583 data points were collected from January, 1990 through to May, 2018. The KMO statistics was 0.750 and the Bartlett's Test of sphericity statistic obtained for the data was 24807.231 of p-value 0.000. The variables were found to be powerfully correlated with reference to the correlation matrix. Principal Component Analysis was performed to reduce the factors (using orthogonal varimax technique to produce uncorrelated factor structures to help allocate appropriately loadings to factors) to a minimum without compromising the variability of the original data. Seven factors were retained (explained 74% of the overall variation) after using multiple extraction approaches of Scree test, Kaiser Criterion and parallel analysis to avoid over- and under-extraction errors. Regression analysis was performed where component scores were used to develop a relationship with the uncorrelated components and GDP. The component 2 (Closed Economy without Government Activities) explicitly contained seven indicators consisting of consumer price index-Food, Consumer price index-Nonfood, Consumer Price index (overall), Monetary Policy Rate, 91-Days Treasury Bill, 182-Days Treasury Bill, crude oil, and Core Inflation (Adjusted for Energy and Utility). Component 2 was significant and positively related with GDP (B = 0.6, p<0.01). Again, Component 5 (Closed Economy with Government activities) explicitly contained two indicators such as Tax-Equivalent Rate on 28-Days Treasury Bill and Tax-Equivalent Rate on 56-DaysTreasury Bill. Component 5 had a positive and significant impact on GDP (B = 0.386, p<0.01). However, component 4 (monetary economy; B = -3.927, p<0.01), component 6 (B = -0.577, p<0.01) and component 7 (B = -0.256, p<0.01) were negatively related with GDP but were statistically significant. The R-squared value of 0.304 shows that the regression model explains about 30% of the variance. It was recommended for future researchers to consider increasing the number of macroeconomic variables to increase the predictive power of the model.

Monetary Policy and Profitability of Commercial Banks in Uganda

Background: Economic theory suggests that monetary policy through interest rates affects bank profitability. There is limited empirical evidence on the relationship between monetary policy and profitability of commercial banks in Uganda. Objective: This study seeks to examine the effect of monetary policy on the profitability of commercial banks in Uganda. Methodology: The study adopts a causal relationship research design. Data, covering 9 years from 2010-2018, was collected from all the registered commercial banks which were in operation over the study period. Various monetary policy variables are included in the empirical model as predictor variables. Return on Assets is used as a measure of bank profitability. A dynamic two-step System Generalized Method of Moments panel estimator is applied to estimate the empirical model. Findings: Estimates show that monetary policy in terms of its link to the lending rate has a significant causal effect on Return on Assets, suggesting that interest rate changes predict bank profitability of commercial banks in Uganda. Further, results show that a rise in core inflation has a significant negative causal effect on the banks’ profitability and that there is a significant lagged effect of Return on Assets. The 91-day treasury bill rate and money supply were insignificant in predicting bank profitability. Originality: Unlike previous related studies which have focused on major advanced economies and a limited number of studies which have considered only a few developing countries like Nigeria and Kenya, the current study provides empirical evidence on the link between monetary policy and commercial bank profitability in Uganda. Practical Implications: Policy makers in the financial sector may use the study results as a basis of implementation of appropriate monetary policy actions that enhance the profitability of Uganda’s commercial banks. For instance, the central bank should promote low and stable core inflation in order to enhance bank profitability, and should ensure that the monetary policy transmission to interest rates is efficient.

Dollar Carry Timing

Dollar carry trade risk premiums – unlike dollar-neutral or foreign exchange carry risk premiums – are positively correlated with firm-level dispersions in investment, profitability, and book-to-market in addition to the Treasury-bill rate, long term bond yield, term spread, and default spread. Several forecasting models pin down the few periods responsible for the entire premium, based on these proxies for the latent risk and price of risk states in the U.S. (and its business cycle). This predictability is also statistically and economically significant out of sample: It generates Sharpe ratios as large as 1.37 (compared to 0.44 unconditionally), for example.

A Factor-Augmented Vector Autoregressive Approach to Analyze the Transmission of Monetary Policy

Using the factor-augmented vector autoregressive (FAVAR) model proposed by Bernanke et al. (2005), this study explores the effect of monetary policy on a wide range of macroeconomic and financial variables for the US, Canada and the UK. The study makes use of financial data from 1990 to 2016, comprising 55-70 variables of the three major nations to show (1) that factors come with additional informational capability, which summarizes the performance of key macroeconomic variables and (2) the manner in which these variables are affected by contractionary monetary policies. Our findings confirm that monetary policy tightening results in decrease in industrial production, employment, share prices, housing starts and inflation; however, it leads to increase in the three-month treasury bill rate, long-term interest rates and unemployment. Overall, the impact of standardized monetary tightening is similar across the countries studied. These results from the major economies and the inclusion of larger data sets containing more variables would be relevant for policy theorists and practitioners from other countries.

Determinants of Treasury Bill Rates in the Philippines

Determinants of Treasury Bill Rates in the Philippines

Does Macroeconomic Indicators Influence Stock Price Behavior? Evidence from Nigerian Stock Market

This paper investigate whether macroeconomics indicators influences stock price behavior in Nigerian stock market, using an annual time series data spanning from 1985-2015. The study employed some econometric tools such as Augmented Dicker Fuller (ADF) Unit Root test, Johansen’s co integration test, Vector Error Correction Model (VECM) to analyze the variables of interest. The study found out that Money Supply (MS) has an inverse but statistically significant influence on stock prices in Nigerian stock market also Treasury Bill Rate (TBR) has an inverse and statistically insignificant influence on stock market prices. While on the other hand, Market Capitalization (MCAP) has a positive and statistically significant influence on stock prices while Exchange Rate (EXR) has positive but statistically insignificant relationship with stock prices in the Nigerian Stock Market. In view of the above, the study recommends amongst others that monetary authorities should try as much as possible to implement sound macroeconomic policies that would enhance stock market growth and development in Nigeria.

Term structure of interest rates: Modelling the risk premium using a two horizons framework

• We propose a portfolio choice model of interest rate term structure with a preference parameter for alternative horizons. • The riskless asset is the one whose duration coincides with the investor’s horizon; any other duration implies a risk exposure. • The investor compares at the 3 and 6-month horizons the market risk premia to those they require to take risky positions. • US 3 and 6-month T-Bill rates stand for short and long rates while the expected short rate is provided by survey data. • The preference parameter significantly varies over time and the market favors the short horizon by two-thirds on average. We propose a two-horizon interest rate term structure model where the maturity of the riskless rate is the one of the debt security whose duration equals investor's desired horizon. Our framework thus relaxes the usual assumptions of the literature that the riskless rate is unchangingly the short period rate. A representative investor compares at each of the 3- and the 6-month horizons the risk premium offered by the market and the one they require to take a risky position, the latter premium being determined by the portfolio choice theory. Due to market frictions, the deviation between the offered and required risk premium evolves according to a mean-reverting process. Using 3-month ahead survey-based expectations of the US 3-month Treasury Bill rate, we employ Kalman filtering to estimate the market risk premium where the preference parameter of investors for alternative horizons is time-varying. We find that the market comprises both a group of agents with 3-month preferred horizon and a group of agents with 6-month preferred horizon with a weigh of two-thirds for the first group.

Inference in heavy-tailed vector error correction models

This paper first studies the full rank least squares estimator (FLSE) of the heavy-tailed vector error correction (VEC) models. It is shown that the rate of convergence of the FLSE related to the long-run parameters is n (sample size) and its limiting distribution is a stochastic integral in terms of two stable random processes when the tail index α∈(0,2). Furthermore, we show that the rate of convergence of the FLSE related to the short-term parameters is n1∕αL̃(n) and its limiting distribution is a functional of two stable processes when α∈(1,2), where L̃(n) is a slowly varying function. However, when α∈(0,1), we show that the rate of convergence of the FLSE related to the short-term parameters is n and its limiting distribution not only depends on the stationary component itself but also depends on the unit root component. Based on the FLSE, we then study the limiting behavior of the reduced rank LSE (RLSE). The results related to the short-term parameters of both FLSE and RLSE are significantly different from those of heavy-tailed time series in the literature, and it may provide new insights in the area for future research. Simulation study is carried out to demonstrate the performance of both estimators. A real example with application to 3-month Treasury Bill rate, 1-year Treasury Bill rate and Federal Fund rate is given.