Money Market Rates Drop as System Liquidity Improves

Money Market Rates Drop as System Liquidity Improves

In the money market, rates trended downwards throughout last week in line with system liquidity as instruments worth N467.8 billion hit the financial system on Thursday.

The Open Buy Back (OBB) and Overnight (OVN) rates trended higher to 11.4% and 12.1% on Monday from previous week’s close of 5.3% and 5.9% respectively despite higher system liquidity of N446.2 billion, from Friday’s level of N46.4 billion.

However, by Tuesday, rates declined as OBB and OVN settled at 10.1% and 10.9% while on Wednesday, rates further declined 6.0% and 6.6% respectively.

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By Thursday, the CBN mopped up N144.3 billion from the system but the effect on system liquidity was negligible following the N467.8 billion open market operation, OMO, inflow on the same day.Money Market Rates Drop as System Liquidity Improves

Due to these, OBB and OVN fell further to 4.7% and 5.7% respectively. However, on Friday, OBB and OVN closed the week at 9.1% and 10.0% respectively from 5.3% and 5.9% in the previous week as system liquidity moderated to N374.0 billion.

Investors continue to anticipate lower short-term rates as revealed in the OMO auctions held on Thursday. 91-day, 175-day and 336-day instruments were on offer with range of bids of 11.65% to 12.84%.

All tenor instruments were oversubscribed with bid-offer ratio settling at 2.0x, 1.03x and 2.3x respectively for the 91-day (offer –N20 billion, subscription – N40.1 billion, stop rate – 11.72%), 175-day (offer – N20 billion, subscription – N20.7 billion, stop rate – 12.77%) and 336-day (offer – N100 billion, subscription – N228.7 billion, stop rate – 12.82%).

In the Treasury Bills secondary market, performance was mixed as rates across benchmark tenors trended lower on 3 of 5 trading days.

The week started on a bullish note – due to the high system liquidity – as average rate across tenors settled at 12.7%, down 8bps from 12.8% recorded the previous Friday.

On Tuesday, sentiment was bearish as average rate advanced 3bs to settle at 12.8% before declining 9bps to close trading on Wednesday.

Following that, average yield rose 7bps on Thursday and closed the week on a bullish note, down 45bps due to OMO maturities worth N467.9bn. Hence, the average yield across the market declined week on week by 0.45% to settle at 12.3%.

Afrinvest expects the CBN to hold OMO auctions in the coming week, given that Instruments worth N140.9bn are expected to mature – PMA maturities of N33.8 billion and OMO maturities of N107.1 billion on the 16th of May.

Analysts said they expect yields across markets to close higher week-on-week.

Money Market Rates Drop as System Liquidity Improves