Rates to decline on N397.72bn maturities

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6 years ago

DESPITE N115billion bonds auction slated for this week, interbank rates are expected to decline this week on the back of N397.72billion Treasury-bills maturity and N435.5billion OMO maturity likely to boost liquidity in the financial markets.

The Debt Management Office (DMO) is expected to reopen 12.75 per cent FGN APR 2023 (5-Yr Re-opening) N35 billion, 13.53 percent FGN MAR 2025 (7-Yr Re-opening) N35 billion and 13.98 per cent FGN FEB 2028 (10-Yr Re-opening) N45 billion respectively.

However, liquidities arising from N435.5 billion OMO maturity are expected to hit the system on Thursday while Treasury-Bills worth N397.72 billion will mature via the secondary market.

With heavy liquidity inflows, it is expected that cost of borrowing in the market will fall even as the Central Bank may continue its liquidity mop up in order to sustain stability in money market rates.

A review of activities previous week showed that decline in financial system liquidity from the prior week was sustained till midweek following a Treasury Bills (T-bills) auction held on Wednesday, before an OMO maturity of N423.8bn hit the system which boosted overall liquidity.

FG to auction N100bn bonds on Feb. 21- DMO

To keep liquidity level in check, the CBN floated one OMO auction. At the T-bills Primary Market Auction (PMA), the CBN offered N3.4 billion, N16.9 billion and N107.9 billion worth of the 91-day, 182-day and 364-day instruments at stop rates of 10.95per cent, 13.2 per cent and 14.5 per cent respectively.

Interestingly, while each of the instruments was oversubscribed, the apex bank issued the exact amount on offer. As a result, investors took advantage of the OMO auction held on Thursday, with the bulk of the subscription centred on the longer tenor instrument.

At the auction, the 77-day (Offer: N50.0 billion, Sale: N0.06 billion), 182-day (Offer: N100.0 billion, Sale: N44.5 billion) and 364-day (Offer: 300.0 billion, Sale: N405.9bn) instruments were issued at marginal rates of 11.5 per cent, 13.0 per cent and 14.5 per cent respectively.

The 77 and 182–day instruments were significantly undersubscribed, while the 364-day instrument was oversubscribed by 1.4x due to the relatively attractive rate on the instrument.

Consequently, the Open Buy Back (OBB) and Overnight (OVN) rates opened the week at 6.1% and 7.0% respectively – higher than 4.3% and 5.0% on the preceding Friday – as system liquidity declined from N664.4bn to N555.3bn.

Rates trended lower to 5.7% (OBB) and 6.6% (OVN) on Tuesday, but trended higher for the rest of the week, settling at 6.3% and 7.2% – up 2.1% and 2.2% W-o-W respectively. Similarly, average T-bills rate closed the week at 13.1%, up 22bps W-o-W following sell offs in short – mid tenors.