OMO Maturities Lift Liquidity, DMO Plans ₦114bn Bond Auction

OMO Maturities Lift Liquidity, DMO Plans ₦114bn Bond Auction

Financial system liquidity opened substantially higher at ₦768 billion from ₦456 billion yesterday, reflecting the impact of Open Market Operations (OMO) maturities on Thursday.

However, in line with expectation, money market rates spiked against the backdrop of settlement of the Debt Management Office (DMO) bond auction which held mid-week, as well as provisioning by DMBs for the retail FX auction.

The Over-night (OVN) and Open Buy Back (OBB) rates surged by 9.3% and 9.7% to 10.33% and 11.50% respectively. OMO Maturities Lift Liquidity, DMO Plans ₦114bn Bond Auction

Chapel Hill Denham said it expects funding pressures to be minimal next week, supported by bond coupon payments on Monday and OMO maturities estimated at ₦133.97 billion.

Analysts however said the fixed income market traded with a mild bullish bias, particularly at the long end of the curve.

At the front end of the curve, discount rates on benchmark Nigerian Treasury Bills (NTBs) closed flat at an average of 1.77%, while the OMO benchmark curve expanded by 20bps to 2.03%.

In the bond market, yields compressed by an average of 16bps across benchmark tenors to 6.77%, driven by interest in long term (-16bps to 8.81%) and intermediate (-5bps to 7.34%) bonds.

“In the short term, we expect the supportive liquidity backdrop and reactions to the MPC’s dovish policy tilt to continue to support further compression in yields in the fixed income market”, Chapel Hill stated.

However, the firm explained that liquidity factors are expected to play a greater role in determining the direction of fixed income yields, with an inflection point likely to come in Q1-2021, once OMO maturities fueling the fixed income rally begin to subside.

Next week, an NTB auction is scheduled to partly rollover maturing bills worth ₦134 billion.

The DMO is set to offer ₦113.97 billion: ₦10 billion of 91-day, ₦17.6 billion of 182-day and ₦86.4 billion of 364-day bills.

The previous auction cleared at 1.09%, 1.50% and 3.05% respectively. We expect a well bid auction, given the liquidity glut in the money market, and also expect the auction to clear at lower stop rates.

Naira to dollar exchange rate traded flat across all segments of the FX market today. In the parallel market, the currency pair was unchanged at 467.00.

Similarly, naira continued to trade within a tight band in official segments, closing flat at 386.00 and 379.00 in the I&E and official windows respectively.

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OMO Maturities Lift Liquidity, DMO Plans ₦114bn Bond Auction