OMO, T-Bills Auctions Outflows Shrink Banking System Liquidity
Excess liquidity in the banking system, which peaked above N6 trillion, shrank due to outflows relating to the settlement of OMO and Nigerian Treasury bills sold at the primary market auctions.
Despite this, system liquidity remained firmly positive, supported by inflows from maturing Open Market Operation (OMO) bills and Treasury Bills, totalling N934.47 billion.
However, liquidity moderated to N2.79 trillion week on week from N3.82 trillion following debits from OMO bill issuances, Treasury Bill settlements, and FGN bond auction-related liquidity mop-ups.
Despite the moderation, funding conditions remained broadly robust, with system liquidity still elevated at N2.79 trillion, Cowry Asset Management Limited said in a note.
OMO repayments provided an additional N2.46 billion in inflows on Friday. However, the Nigerian overnight financing rate (NOFR) held steady at 22% throughout the week, with daily variation ranging from 1.50% to 10.00%, according to AIICO Capital in its market update.
Market analysts said this sustained liquidity surplus helped ease short-term funding pressures, as the overnight funding rate declined by 6 basis points week-on-week to 22.24%, while the Open Buy Back (OPR) rate remained unchanged at 22.00%.
Similarly, the overnight NIBOR edged lower by 5 basis points, reflecting improved short-term liquidity conditions, even as the Central Bank of Nigeria maintained its tight monetary stance during the week.
However, medium- to longer-tenor funding rates moved in the opposite direction, according to Cowry Asset Limited. The 1-month, 3-month, and 6-month NIBOR rose by 32bps, 94bps, and 114bps, respectively, indicating tightening expectations further out the curve.
Liquidity levels are expected to remain elevated in the coming week, supported by an inflow of about N1.97 trillion from OMO maturity alongside coupon inflows of N35.26 billion from 28-Nov-28 FGN Bond, according to AIICO Capital Limited.
Analysts anticipated that these inflows would provide additional liquidity support to the system. However, given elevated liquidity levels, CBN mop-up actions may partially offset the liquidity impact of the maturities.
In the secondary Treasury Bills market, sentiment remained mildly bearish, driven by selective selling interest at the mid- and long-end of the curve.
Market analysts said continued liquidity mop-ups also exerted upward pressure on yields, pushing average NT-Bills yields higher by 2bps week-on-week to 17.52%, from 17.50% previously.
At the primary market auction, the Debt Management Office (DMO) offered N650 billion across standard maturities, attracting strong demand with total subscriptions of approximately N2.0 trillion.
Ultimately, N829.3 billion was allotted, reflecting robust investor appetite despite tight monetary conditions. Stop rates remained broadly stable across all tenors, closing at 15.95% for the 91-day, 16.14% for the 182-day, and 16.15% for the 364-day instruments. AAG Capital Sets N141.62 Target Price for GTCO Ahead of Q2
