Analysts Project Strong Participation at CBN Auction Despite ₦600bn CRR Debit

Analysts Project Strong Participation at CBN Auction Despite ₦600bn CRR Debit

Analysts have projected a strong participation at the Central Bank of Nigeria (CBN) primary market auction scheduled for the week despite pressure on financial system liquidity due to ₦600 billion debit on banks.

This week, the CBN has scheduled a primary market auction (PMA) to rollover bills worth ₦232.4 billion across the 91days, 182days and 364days bills.

Last week, total sum of ₦600 billion was sterilised by the Central Bank of Nigeria (CBN) from banking sector as penalty for failing to meet 65% loan to deposit ratio leading to pressure on system liquidity.

On Monday, the apex bank debited banks with about ₦400 billion, again on Friday about N200.billion debit was posted against lenders deposit.

Thus, at the interbank window, the open buyback (OBB) and overnight (OVN) rates surged higher by 750 basis points (bps) and 850bps, closing at 8.0% and 9.3%, respectively.

According to United Capital Plc, the surge comes after the market opened at over ₦1.0 trillion liquidity position on Monday, but a double dose of CRR debit from the CBN on Monday pressured liquidity at the close of the week.

Recalled the CBN conducted an open market operations (OMO) auction to mop up N60.0 billion out of market liquidity on Thursday.

Meanwhile, in the secondary Nigerian Treasury Bills market, average yield edged lower by a marginal 3 basis points bps week on week to close the week at 0.43%.

Analysts said the decline in yields was primarily driven by huge buying interest in short to mid tenor bills as the average yield on short, and mid tenor bills fell 15bps and 4bps respectively.

“We think this reflects investors’ expectation of yield reversal as they close out long positions in long tenor bonds and play at the short end of the curve”, United Capital stated.

On the flip side, the OMO bill market witnessed significant selloffs as investors sold off long tenor OMO bills – up 63bps week on week.

Consequently, the OMO-bill market’s average yield rose by 27bps week on week to 0.85% from 0.58%.

 “We expect to see a robust bid-to-cover ratio at the auction whilst the CBN will keep rates relatively low across the curve amid investors push for higher yields”, United Capital stated.

Read Also: FPI to Stay Sideway Until CBN Raise FX Sales or Devalue Naira –Tellimer

Analysts Project Strong Participation at CBN Auction Despite ₦600bn CRR Debit