Money Market Rates Drop Amidst Robust Financial System Liquidity
Due to strong liquidity in the system, money market rates dropped, as the Open Buy Back (OBB) and Overnight (OVN) rates declined by 300bps and 350bps to 6.00% and 6.25% respectfully.
Liquidity remained robust in the financial system Monday, opening at N1.0 trillion from N1.4 trillion last Friday, and further boosted by two bond coupon payments worth N113 billion.
Analysts at Chapel Hill Denham said they expect rates to decline further to low single-digit during the week.
This is expected due to prevailing robust liquidity, and additional bond coupon payment worth N47 billion and Open Market Operations maturities valued at N336.09 billion that are expected on Tuesday.
Meanwhile, sentiments were mixed in the fixed income market as short term rates traded largely flat while the Nigerian Treasury Bills and OMO benchmark curves expanded by a marginal 4bps and 1bp to 0.44% and 0.55% respectfully.
On the other hand, the bond rally resumed with the benchmark curve compressing by an average of 18bps to 3.95%, driven by the short (-44bps to 2.76%), mid (-6bps to 3.68%) and long (-7bps to 5.48%) end of the curve.
“As we noted, non-bank local investors finally exhausted their OMO holdings last week.
“Ordinarily, this should have ignited an upward repricing in yields, however, we understand that banks and foreign portfolio inflows still have substantially OMO maturities between this week and March 2021.
“In that case, yield direction henceforth will solely depend on CBN’s liquidity tolerance or otherwise in the next few months.
“By implication, Investors will be watching the frequency and magnitude of the Apex Bank’s OMO issuances.
“If the CBN ramps up OMO issuances to roll over the OMO inflows in the coming weeks that could start to force yield uptrend.
“If the reverse were the case, then the liquidity backdrop will remain supportive of low yields in the fixed income market, particularly as supply by the DMO will remain thin till January 2021”, Chapel Hill Denham stated.
Meanwhile, the market expects Nigerian Treasury Bills auction scheduled to hold on Wednesday to partly rollover maturities worth N154 billion.
The Debt Management Office is scheduled to offer N134 billion, split between 91-day (N29.8bn), 182-day (N10.6bn), and 364-day (N93.9bn) tenors.
The previous auction cleared at 1.00%, 1.00%, and 2.00% respectively.
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“In our view, the blend of heavy demand and relatively thin supply should keep auction clearing rates at record sub-1% levels”, analysts said.
Money Market Rates Drop Amidst Robust Financial System Liquidity
