Rates to remain pressured N350 billion liquidity boost

THERE are strong expectations that interbank rates will remain low due to elevated liquidity which will exert pressure in the market.

There will be coupon payment of l₦340.0 billion and Open Market Operation (OMO) bills worth ₦10.0 billion.

Hence, dealers from Afrinvest (West) Africa said, “We expect system liquidity to remain robust following inflows from – coupon payment (₦340.0 billion) and OMO (₦10.0 billion) hence, we expect interbank rates to remain pressured. Consequently, we anticipate bullish sentiment to dominate in the secondary market.”

Meanwhile, the Central Bank of Nigeria (CBN) has further slashed spot rates on short term borrowing instruments as investors continue to park funds in money market assets.

The average yield on short term investment options declined further in the financial markets due to investors’ aggressive demand following the inflation rate slowdown.

The average yield on Nigerian Treasury bills recently declined due to sustained demand across tenors in the secondary market.

The market witnessed similar buying interest in the OMO bills segment. The demand for these naira assets dragged yield lower as the market expected inflation to ease in August, but with mixed feelings on the consumer price index trajectory thereafter.

At the primary market auction, the FG (through the DMO) offered NT-bills with a combined value of ₦169.9 billion across the 91, 182, and 364-day tenor to roll over equivalent maturities in the week.

Demand was healthy across all ends of the curve with a bid-to-offer ratio of 2.6x, 1.3x, and 3.6x respectively for the 91-day (offer: ₦6.8 billion, subscription: ₦17.8 billion), 182-day (offer: ₦4.9 billion, subscription: ₦6.2 billion) and 364-day (offer: ₦150.1 billion, subscription: ₦539.2 billion) papers.

Nonetheless, the DMO kept allotment within its initial offer cap, resulting in rejected bids worth ₦401.3 billion. Following these intricacies, stop rates across tenors inched lower by 37, 50, and 35 badis points (bps) to 16.6 percent, 17.0 percent, and 18.6 percent sequentially, compared to rates at the previous auction.

The CBN recorded a significant influx of demand in the latest Nigerian Treasury Bills (NTB) auction conducted on September 11, 2024, with total subscriptions reaching N563.17 billion across the three tenors.

This marks a notable appetite for risk-free assets, even as the offered amount stood at N161.88 billion, revealing an oversubscription rate of 248 percent across the tenors.

However, in comparison to the previous auction on September 4, 2024, where N1.13 trillion was subscribed, the current auction shows a 50.14 percent decrease in total subscriptions.

On the allotment side, the total amount of N161.88 billion allotted in this auction reflects a 30.59 percent reduction compared to the N233.31 billion allotted in the prior auction.

Chima Nwokoji