Expected N120.0bn bond auction, liquidity mop up to push rates upwards

There are expectations that a scheduled bonds auction of about N120.0billion and the Central Bank of Nigeria’s (CBN’s) regular mop-up of excess liquidity in the system will push money market rates northwards.

Nigeria’s central bank has sold about 283 billion naira ($877.11 million) worth of treasury bills to mop up liquidity, driving up interbank lending rates, traders said on Friday.

“We expect the market to open in the negative next week, given the volume of OMO bills sold, while the interbank lending rate is seen within the 18-20 percent range,” one dealer said.

Dealers at Afrinvest West Africa Limited also added their voice, stressing ,“in the week ahead, we expect money market rates to trend northwards as the CBN continue to mop-up excess liquidity in the system in addition to a scheduled bonds auction of about N120.0bn by the DMO next Wednesday.

Also, “we expect activity level at the local bonds market to be broadly driven by primary market auction by the Debt Management Office (DMO) scheduled for next Wednesday.”

The DMO is to auction between N90.0 billion – N120.0 billion of the JULY 2021, JAN 2026 and MAR 2036 bonds at the Monthly Primary Market Auction (PMA), where dealers said they expect the auction to be oversubscribed in line with recent DMO PMAs.

Other dealers from Cowry Assets Management Limited, in a note to investors stated that the outflow from FGN Bond auction of N105 billion will be partially offset by maturing OMO-301-day bills worth N23.684 billion. This week, the Debt Management Officewill issue Federal Government bonds worth 105 billion, viz:5-year, 14.50% FGNJUL 2021 paper worth N35 billion, 10-year, 12.50 per cent FGN JAN 2026 bond worth N35 billion and 20 year, 12.40 per cent FGNMAR 2036 debt worth N35 billion.

In September, the central bank sold Open Market Operations (OMO) bills to soak up about 1.2 trillion naira, in a bid to curb speculation against the currency and shore up fixed income yields to attract investors.

The bank said it will keep interest rates tight to attract foreign currency and resolve a chronic dollar shortage brought on by a slump in oil prices.