Money Market Rates Mixed, OMO Bill Debit Soaks Up Liquidity

Money Market Rates Mixed, OMO Bill Debit Soaks Up Liquidity

The short-term benchmark interest rates mixed as a huge OMO bill debit strained liquidity conditions in the money market. The outflow pushed funding costs higher at the close of business on Thursday.

The financial system liquidity plunged sharply as the Central Bank of Nigeria (CBN) mopped up about N4 trillion from the surplus money market funding profile. This happened despite sizeable lodgment by deposit money banks at the CBN standing deposit facility.

Investment firm AIICO Capital Limited acknowledged that the banking system liquidity opened the day significantly moderated at a surplus balance of ₦560.22 billion.

Analysts said the amount reflect ₦4.07 trillion drop from the previous opening.  This contraction was largely driven by OMO sales of ₦3.79 trillion despite substantial placement of ₦4.19 trillion.

The market also recorded a ₦41.96 billion coupon inflow from the 29-Jan-2035 bond, enhancing the financial liquidity conditions.

Consequently, average funding cost ticked up slightly by 2bps to 22.67 from the previous 22.65% as the Overnight Rate (OVN) rose 4bps to 22.83, while the Open Repo Rate (OPR) closed flat at 22.50%.

System liquidity is expected to remain relatively buoyant in the absence of any significant outflow. Interbank rates are projected to range between 22.50% and 22.80%.

The market expects funding costs to tick up slightly following prevailing liquidity conditions, barring any funding activities. Trading activities on Nigerian Treasury bill was bullish.

 The market recorded that the average benchmark yield declined by -21bps to close at 18.19%, driven by demand for the 308-day to maturity (-143bps) and 343-day to maturity (-102bps) bills.

Similarly, proceeding in the secondary market for OMO market was also bullish as the average benchmark yield declined by -17bps to close at 21.09%.