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Interbank rates to rise as N10bn OMO bills mature

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2 years ago

Stop Rates at the Nigerian Treasury Bills (NT-bills) auction tapered amid buoyant system liquidity as interbank rates are expected to rise with N10 billion Open Market Operation (OMO) bills maturity this week.

In the new week, dealers said treasury bills worth N10.00 billion will mature via OMO. Nevertheless, it is expected that interbank rates will rise marginally given the relatively limited number of maturing T-bills, dealers from Cowry Assets Management Limited stated.

Meanwhile the Central Bank of Nigeria (CBN) conducted its first NT-bills auction for May 2023 at the primary market.

The CBN offered a total of N143.98 billion bills across the 91-day, 182-day and 364-day papers. At the auction, investors’ demand was strong, with total subscriptions printing at N820.8 billion, implying a bid-to-cover ratio of 5.7x. The bulk of the demand came for the longer-tenured paper as the one-year paper was oversubscribed by 5.6x. Notably, the apex bank opted to sell just the amount on offer.

In line with market expectations, the stop rates across all tenors remained depressed as seen in the previous two auctions. The stop rate on the 91-day, 180-day and 364-day papers fell by 80bps, 156bps and 118bps to settle at 4.50 percent, 6.44 percent and 8.99 percent (vs 5.30 percent, 8.00 percent and 10.17 percent), respectively.

The decline in stop rates can be attributed to the buoyant liquidity present in the financial system following the residual inflows from April’s bond maturity to the tune of N736.0 billion.

Looking forward, analysts expect that rates in subsequent auctions will begin to tick upwards in the near short term, giving room for a yield curve reversal.

Dealers’ expectation is hinged on the back of low maturities to the tune of N103.5 billion (N23.5 billion coupon payments and N80.0 billion OMO maturities) expected till the end of first half (H1) 2023.

In addition, the anticipated hike in the Monetary Policy Rate (MPR) shapes analysts’ outlook for an uptick in rates in the fixed-income environment.

The need to tackle persistent inflationary pressures and defend the weakening naira will play a considerable role in the hike decision at the MPC’s May meeting. Lastly, the sustained global hawkish monetary policy tone will lead to a strong hike consideration for the committee to avoid capital flights. For equities, it is believed that the expected rate reversal will lead to a bear market as investors would switch asset classes and favour fixed-income instruments. Also, profit-taking activities off the extended rallies seen in the market due to the Q1-2023 earnings season are expected.

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