Rates to rise as investors’ preference for fixed income securities intensify

Expectations are high that money market rates will adjust upwards as investors continue to buy into fixed income securities.

Traders said rates will bend to liquidity dynamics as dictated by the Open Market Operation mop-ups expected to be conducted by the Central Bank of Nigeria barring any unexpected inflow.

At the Treasury Bills (T-bills) auction on Wednesday, N28.1 billion of 91-day, N23.6 billion of 182-day and N89.1 billion of 364-day instruments were issued at stop rates of 14.0 per cent, 17.3 per cent and 18.3 per cent respectively.

The auction was oversubscribed by 0.4 times with net subscription amounting to N398.1 billion against net offered amount of N140.9 billion.

Nigeria’s interbank lending rate eased to around 15 percent on Friday, down from nearly 40 percent for overnight lending a week ago, as the disbursal of August budget allocations to government agencies boosted market liquidity.

“We expect money market rates to adjust in tandem to liquidity dynamics as dictated by OMO mop-ups by the Apex Bank barring any unexpected inflow,” said dealers from Afrinvest West Africa Limited.

Overall the market had a liquidity surplus of N283.61 billion  at Friday’s opening, compared with the previous week’s deficit of N128 billion.

Traders said about N231 billion ($733.33 million) was injected into the banking system late on Thursday as states and local government were paid their budget portions.

“We expect the central bank to continue to sell treasury bills in the coming days in its bid to reduce pressure on the local currency, with the consequent impact on interbank rate,” another dealer said.

Notwithstanding improved system liquidity, activities in the Treasury Bills market were largely mixed amid expected outcome of the September MPC meeting as well as primary market issuances.