Interbank Rates Slow Down as Naira Appreciates
Interbank funding rates decline Tuesday as Nigerian local currency, naira, appreciates at the investors and exporters window. Pressure in the financial system liquidity has kept overnight and open buyback rates high in the recent time.
The financial system liquidity has been pressure due to slow down in inflow from maturing bills as banks participation at the standing lending facility of the Central Bank gained momentum.
Meanwhile, the Nigerian Treasury Bill (NTB) secondary market closed on a bearish note as the average yield expanded slightly by a basis points to 6.6%.
Across the benchmark curve, Cordros Capital said in a market report that average yield expanded at the long end by 3 basis points to 8.4% due to sell-off of the 345 day to maturity bill.
However, rate stayed flat at the short and mid segments. Similarly, the average yield at the open market operations segment expanded by a basis points at 9.9%.
Also, Cordros Capital said in the market report that trading in the Treasury bond secondary market was bullish as the average yield contracted by 10 basis points to 11.7%.
Across the benchmark curve, average yield contracted 14 basis points at the short, 2 basis points at mid and 11 basis points at long segments following demand for the MAR-2024 (-61bps), MAR-2027 (-11bps) and APR-2049 (-44bps) bonds, respectively.
The Central Bank of Nigeria (CBN) will hold a Primary Market Auction (PMA) Wednesday where existing Nigerian Treasury bill totaling NGN81.74 billion (NGN2.88 billion, NGN20.00 billion and NGN58.86 billion across the 91-day, 182-day, and 364-day instruments) will mature and be rolled-over.
At the last PMA, rates on the 91-Day (2.50%) and 182-Day (3.50%) instruments remained flat while the rate on the long end (364 days) reduced further by 24bps (to 9.40% from 9.64%).
Meristem Securities in a report said investors’ interest (indicated by average bid-to-cover of 9.21x vs 1.82x at the previous auction) was strong across all tenors.
Analysts said the significantly high bid to-cover ratio was however due to the borrower’s relatively low appetite (as only 17% of the amount raised at the previous PMA was raised, despite strong demand).
In line with recent trends, demand was strongest on the long-end instruments, hence, the incentive to reduce the rate on it.
“In the coming auction, we do not expect higher rates relative to the previous rates as there has not been any significant change in market dynamics since the last auction”, Meristem Securities said in the report.
It was noted that investor appetite remains robust particularly on the long end of the curve which the Federal Government will continue to exploit given its precarious revenue position.
“Noteworthy is the impact of the potential increase in fiscal deficit by NGN760.84 billion to NGN6.36 trillion on debt service due to the NGN895.84 billion supplementary budget recently forwarded to the National Assembly by the Budget Office for consideration and approval”, analysts said.
Meanwhile, sell-offs in the secondary market for T-Bills have persisted across all tenors as high rate of inflation continues to spur negative sentiment in the secondary market despite the dearth of relatively safe alternative investment assets.
“Our view is that the bearish sentiment will persist in the near term, however, the relatively slower growth (or even plateauing) of PMA rates is a material risk to this outlook”, Meristem Securities stated.
In the foreign exchange market, the naira appreciated at the Investors and exporters window by 0.1% to N410.83 per dollar but stayed flat at N502.00 at the parallel market.
Interbank Rates Slow Down as Naira Appreciates
