Interbank Rates Ease as Bond Coupon Payment Boosts Liquidity

Interbank Rates Ease as Bond Coupon Payment Boosts Liquidity

Interbank funding rates eased as the market re-opened Monday, partly boosted by bond coupon payments.

However, financial system liquidity opened substantially lower at ₦195 billion from ₦786 billion, reflecting settlement of the bond auction on Friday and provisioning by banks for the retail FX auction on the same day.

The Overnight (OVN) and Open Buy Back (OBB) rates declined by 7.3% and 7.5% to 3.0% and 4.0% respectively.

Analysts at Chapel Hill Denham said they expect funding pressures to remain minimal this week as it will be supported by Open Market Operations (OMO) maturities estimated at ₦133.97 billion on Thursday.

Read Also: Funding Pressure Benign as Financial System Liquidity Drops

The fixed income market traded relatively calm Monday after the breathtaking rally late last week, analysts at Chapel Hill Denham said.Interbank Rates Ease as Bond Coupon Payment Boosts Liquidity

Analysts said short term rates traded mixed, as the Nigerian Treasury Bills (NTB) benchmark curve compressed by an average of 8 basis point (bps) to 1.69% while the OMO curve expanded by 3bps to 2.06%.

In the bond market, Chapel Hill Denham hinted that long duration continued to outperform.

However, the firm said pressures on intermediate bonds pushed the average yield on the benchmark bond curve upward by a marginal 1bp to 6.78%.

In the short term, Chapel Hill said it expects the supportive liquidity backdrop and reactions to the MPC’s dovish policy bias to continue to support further compression in yields.

However, it said over the medium term, liquidity factors are expected to play a greater role in determining the direction of fixed income yields.

Analysts expect an inflection point would likely come in Q1-2021, once OMO maturities fueling the fixed income rally begin to subside.

Meanwhile, the Debt Management Office is set to offer ₦113.97 billion across three tenors (91-day, 182-day and 364-day) to partly rollover maturing bills worth N134 billion.

Analysts recalled that the previous auction cleared at 1.09%, 1.50% and 3.05% respectively.

We expect a well bid auction, given the liquidity glut in the money market“, analysts at Chapel Hill Denham stated.

In the foreign Exchange market, the USD/NGN rate traded flat across all segments of the FX market. In the parallel market, the currency pair was unchanged at ₦467.00.

Similarly, the naira continued to trade within a tight band in official segments, closing flat at ₦386.00 and ₦379.00 in the I&E and official windows respectively.

VIAJulius Alagbe
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