Money Market Rates Fall as Inflow from Matured OMO Bills Lifts Liquidity

Money market rates declined further Tuesday and remained at low single-digit as open market operations (OMO) maturities lifts financial system liquidity.

As expected, interbank funding pressures remained broadly benign as financial system liquidity opened higher at N664 billion from N655.5 billion.

Meanwhile, system liquidity was further boosted by OMO maturities worth N224.45 billion which hit the system earlier Tuesday.

Notably, the Open Buy Back (OBB) and Overnight (OVN) rates eased by 25 basis points (bps) and 17 bps to 0.50% and 0.83% respectively.

“We expect funding pressures to remain benign for the most part of the week. Liquidity could however become tight on Friday due to the CBN’s retail FX auction”, Chapel Hill Denham said in a commentary.

The fixed income market recorded increased buying sentiment following the selling pressures on Monday, as sentiments were boosted by improved liquidity in the financial system and rally in oil prices.

Notably, bond yields declined by an average of 4bps across benchmark maturities to 3.96%, mainly driven by short (-2bps to 2.78%) and intermediate (-9bps to 3.67%) tenors, as duration apathy persisted.

At the front end of the curve, discount rates on benchmark Nigerian Treasury Bills closed flat at an average of 056%, while the OMO curve eased marginally by 2bps to 0.53%.

Analysts at Chapel Hill Denham think it is too early to call the end of the bond rally despite the recent volatility in the oil market, as the liquidity backdrop remains supportive in the near term.

Meanwhile supply of bonds will likely remain thin until the DMO begins to implement the 2021 deficit financing plan, at which point analysts said they expect yields to stabilise.

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By Ogochi Ndubuisi