Interbank Rates Ease Slightly as DMO plans ₦145 billion auction

Interbank Rates Ease Slightly as DMO Plans ₦145 Billion Auction

Interbank funding rates eased slightly yesterday, as the Debt Management Office (DMO) plans to issue up to ₦145 billion at the auction holding next week.

In the money market, rates drop amidst financial system liquidity which opened lower at ₦192 billion from ₦219 billion on Monday.

The Open Buy Back and Overnight rate declined marginally by 60 basis points (bps) and 55 bps to 4.40% and 5.20% respectively.

The planned auction according to the DMO’s September bond issuance circular which it splits amongst JAN 2026 (₦25 billion), MAR 2035 (₦40 billion), JUL 2045 (₦40 billion) and MAR 2050 (₦40 billion) as previous auction closed at 6.7%, 9.35%, 9.75% and 9.90% respectivelyInterbank Rates Ease Slightly as DMO Plans ₦145 billion Auction

Chapel Hill Denham expectation is that money market rates will remain subdued in subsequent sessions as liquidity will likely remain buoyant.

Meanwhile two additional bond coupons are expected this week, estimated at about ₦90 billion, and a large open market operations (OMO) maturity worth ₦350 billion is scheduled for tomorrow.

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Meanwhile, analysts said the fixed income market traded with a slight bullish bias, despite a major negative inflation surprise.

At the front end of the curve, discount rates on benchmark Nigerian Treasury Bills (NTBs) were un-changed at an average of 1.73%, while the OMO curve compressed by an average of 6bps to 2.33%.

However, bond market recorded decline in yields by an average of 4 bps to 7.23% across the benchmark curve, supported by bullish sentiments across the curve: short (-1bp to 4.10%), intermediate (-6bps to 7.73%) and long (-4bps to 9.74%) segments of the curve.

The National Bureau of Statistics (NBS) reported that August CPI data delivered a major negative surprise.

Headline inflation rate spiked by 40 bps to a 29-month high of 13.22% year on year,  which was above Chapel Hill’s forecast of 12.94%, marking the 12th consecutive increase in inflation rate since the borders were closed in August 2019.

Pressures in the CPI were broad-based, as food and core inflation spiked by 51bps and 42bps to 16.00% and 10.52% year on year.

Analysts stated outlook is biased to the upside due to increase in fuel prices and electricity tariff. Weak FX liquidity and an underwhelming harvest season also remain upside risks to inflation.

Chapel Hill Denham explained that nonetheless the high inflation expectation, fixed income investors will likely continue to discount inflation data, considering that liquidity factors have become the preeminent drivers of returns.

“However, we expect to see increased duration apathy towards the October inflection point, when non-bank local financial institutions would have fully rotated out of OMO bills”, the firm noted.

In a related development, pressures persisted in the parallel market as the dollar to Naira  bid rate depreciated by ₦5 or 1.1% to 450, while the ask rate was unchanged at 460.

In the I&E Window, the naira continues to trade within a tight band, and closed flat at 386.00.

Interbank Rates Ease Slightly as DMO plans ₦145 billion auction