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CBN market reports

Market Update: Nigeria’s money market sees more liquidity, interest rate drop

By on September 21, 2020 0 118 Views

Nigeria’s interbank money market rate is seen decreasing this week as currency dealers anticipate the injection of fresh liquidity into the system from matured Open Market Operation (OMO) bill and coupon payment on federal government bonds.

Currency traders at Citibank Nigeria said interbank rate declined last week by 13.50 basis points on the impact of about N492 billion cash injected into the system by the Central Bank of Nigeria (CBN) and the Debt Management Office (DMO) through bill maturity and coupon payment.

According to them, overnight fund placement fell to 3.0 percent on the interbank after the CBN repaid N350 billion matured OMO bill into the money market while the DMO repaid N142.09 billion in bonds coupon.

“Barring any significant drawdown from the system this week, we expect the overnight rate to remain low, as a combined NGN318.12 billion comes into the system from OMO maturities (NGN300.00 billion) and FGN bond coupon payments (NGN18.12 billion), Citibank Nigeria wrote in a note to clients on Monday.

The lender stated that Treasury Bills was bullish last week, “as the ample liquidity in the system drove demand for instruments.”

“Thus, the average yield across all instruments contracted by 13bps to 2.0 percent. Across the segments, the bullish performance of OMO segment (contracted by 14bps to 2.3 percent) was sustained from the previous week, despite the reduced trading volumes, as local participants took positions in short to mid tenor instruments.

Similarly, trading was bullish at the NTB market (contracted by 12bps to 1.6 percent), as market participants covered for lost bids at the auction,” the bank wrote in the note.

At the Primary Market Auction (PMA), demand continued to outweigh supply, as there was an oversubscription of 1.3x on the N158.75 billion worth of bills on offer.

The bullish trend is expected to continue this week. On the Bond market trading activities in the Treasury bonds, the secondary market remained bullish last week, despite an uptick in the headline inflation, as the average yield across instruments contracted by 51bps to 7.6 percent.

“The performance was driven by investors re-investing maturities and coupon payments in the space. Across the curve, yield contracted at the short (-102bps), mid (-23bps) and long (-26bps) segments of the curve, MAR-2024 (-187bps), FEB-2028 (-47bps) and JUL-2034 (-41bps) bonds, respectively.

“This week, we expect investors’ focus to be shifted to the PMA on Wednesday, as the DMO is set to offer instruments worth N145.00 billion,” currency traders at Citibank Nigeria said.

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