Despite Strong Liquidity, DMO Unveils Relatively Soft Q4 Borrowing Plan
Despite robust liquidity in the financial system, the Debt Management Office (DMO) today released Q4-2020 borrowing calendar with plans to increase supply to a range of N80bn to N100bn each at the auctions in November and December, up from N50bn sold in October.
Some analysts consider this is relatively low following increase in liquidity level due to scarcity of high yield investment options.
In a note, analysts at Chapel Hill Denham Limited reckoned that the borrowing target is thin compared to the level of demand.
Particularly, in view of the substantial upcoming open market operations (OMO) maturities and Federal Account Allocation Committee payout for November.
Against this backdrop, analysts said outlook remains biased towards lower yields in the next few weeks, until the DMO begins to implement the 2021 deficit financing plan.
At that point, analysts said they expect yields to stabilise.
Strong liquidity has continued to keeping rates down.
This is evidence in the money market today, interbank funding pressures remained benign due to robust liquidity seeking for investment options.
On Thursday, financial system liquidity opened slightly lower at N859 billion from N864 billion in the previous day.
As a result, the Open Buy Back (OBB) rate closed flat at 0.63%, while the Overnight (OVN) rate rose mildly by 34bps to 1.38%.
“We expect funding pressures to increase tomorrow, due to the scheduled bi-weekly retail FX auction”, analysts at Chapel Hill Denham said.
On Thursday, sentiments were broadly weak in the fixed income market as duration apathy was noticeable, analysts said.
Although benchmark bond yields declined by an average of 4bps to 3.64%, this was mainly driven by positioning at the short end the curve (-14bps to 1.76%).
Meanwhile intermediate bonds closed flat at 3.69% and long term bonds rose by a marginal at a basis point to 5.46%.
At the front end of the curve, the OMO segment continued to trade upbeat, as discount rates on benchmark OMO bills compressed by an average of 10bps to 0.24%.
However, treasury bills traded flat at an average of 0.56%.
Read Also: Yields to Stabilise as DMO Implements 2021 Deficit Financing Plan
Despite Strong Liquidity, DMO Unveils Relatively Soft Q4 Borrowing Plan
