Interbank rates fall on Monday as financial system liquidity improves about twice its previous position as activities in the Central Bank lending and deposit facilities slumped.
Having stayed in the deficit region for a while, liquidity in the financial system jumped from N69.9 billion on Friday to N112.4 billion on Monday. Reacting to the development, the open buy back (OBB) and the overnight (O/N) rates declined by 67 and 75 basis points to 14.35% and 14.50% respectively.
Chapel Hill Denham’s report said system liquidity turn out strong as activities in the three most active windows – the Standing Lending Financing (SLF) window, the Standing Deposit Financing (SDF) window and the Repurchase Agreement (Repo) window declined.
MarketForces Africa reported that banks were playing strong at the Central Bank’s Standing Lending Facility (SLF) to closed the gap in their daily liquidity requirements. Also, CardinalStone Partners revealed that banks borrowing from the facility increased 7-fold since the begining of the year.
Meanwhile, activities in the gilt-edge market remain cold amidst declining yield following the initial uptrend repricing.
Investors appear to be nursing the disappointing outcome of the MPC meeting as they had envisaged an increase in benchmark interest rate. However, the Central Bank maintained the status quo on key policy rates to consolidate economic growth.
The fixed income space was mostly quiet on Monday as last week, with some activities seen in the open market operations (OMO) and secondary bonds space.
“Slight bearish sentiments in the Jul-21 treasury bills was insignificant to exert any major effect as the Nigerian Treasury Bill benchmark closed flat at 6.04%”, Chapel Hill Denham’s analysts stated.
The OMO benchmark curve compressed by 14 bps to 9.30% as investors sold across most maturities to possibly hold liquidity ahead of the Treasury bill auction this week.
Analysts stated that with mixed trades across six maturities, the Federal Government of Nigeria (FGN) benchmark bond curve surged by 3 basis points to close at 13.02% today.
“We expect investors to gather liquidity by selling the front-rates to re-invest in the Nigerian Treasury Bill auction”, Chapel Hill Denham said.
Market Wrap: Last week, in the fixed income market
Mixed sentiments prevailed across the different segments of the fixed income market last week. The market was mostly quiet on the front end of the curve until the N55.5 billion open market operations (OMO) maturities hit the system on Tuesday.
Consequently, the OMO benchmark curve expanded by 30bps week on week to 9.44%, while the Nigerian Treasury Bill (NTB) benchmark curve closed flat at 6.04%.
The bond benchmark curve slid by 34 basis point week on week to 13.00% as analysts noted that investors repositioned their holdings across maturities.
At the OMO auction that held last week Thursday, the CBN auctioned N20bn (89-day: N5 billion, 180-day: N5 billion and 348-day: N10 billion) worth of bills to re-absorb the earlier OMO repayment.
As expected, the 180- and 348-day maturities were oversubscribed with a bid-to-offer ratio of 1.76x and 4.90x, respectively. The auctioned cleared at 7%, 8.5%, and 10.1% on the 89, 180, and 348-day bills respectively, similar to the previous auction.
“Going into the new week, we expect investors to trade cautiously on the front end of the curve, especially as liquidity conditions are expected remain constrained, a negative development for yield in the near term”, Chapel Hill Denham said.
On Tuesday, only N80 billion OMO maturities are expected to hit the system, which analysts said is either too paltry to move a needle, or will probably be completely mopped up by the CBN.
Meanwhile, the CBN, on behalf of the Debt Management Office (DMO) will likely fully roll over the expected N89.05 billion worth of Treasury bill maturing on Thursday.
“In our view, the outturn in the short end of the market will likely culminate in bearish sentiments in the bond market this week”, analysts said.