Robust Liquidity Subdued Funding Pressure as DMO Plans Auction

Robust Liquidity Subdued Funding Pressure as DMO Plans Auction

Robust liquidity in the financial system subdued funding pressure in the market as inflow from maturing open market operations (OMO) lift liquidity size.

Reflecting the inflow of OMO maturities estimated at N243.77 billion, the financial system opened substantially higher at N421 billion from N202 billion on Monday.

As a result, the Open Buy Back (OBB) and Overnight (OVN) rates fell by 117 basis points (bps) and 114bps to 0.75% and 1.19% respectively.

“We expect funding pressures to remain subdued throughout the week, barring a major Cash Reserve Requirement (CRR) debit by the CBN”, Chapel Hill Denham noted in a commentary.

It was also observed that investors sentiments remained broadly mixed in the fixed income market today.

At the front end of the curve, the Nigerian Treasury Bill benchmark curve compressed marginally by 1bp to 0.54% while the OMO curve expanded by 6bps to 0.26%.

Similarly, bonds traded mixed, as sustained interest at the short end of the curve (-11bps to 1.60%) was offset by weak appetite for intermediate bonds (+8bps to 4.19%).

Consequently, Chapel Hill Denham stated that average yield on the benchmark bond yield curve remained unchanged at 4.12%.

Meanwhile, a rollover Nigerian Treasury Bill auction is scheduled to hold Wednesday.

Based on the issuance calendar, the DMO is expected to offer N147.8 billion compared to N167.82 billion maturing, implying a N20 billion net maturity.

Chapel Hill Denham then stated that the offer will be split between the 91-day (N19.78bn), 182-day (N40.09bn) and 364-day (N87.94bn) tenors.

The firm stated that the last auction cleared at 0.341%, 0.500% and 0.980% respectively.

“We expect the auction to clear at sub-1% level given the sizeable excess liquidity in the system”, Chapel Hill Denham explained.

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Robust Liquidity Subdued Funding Pressure as DMO Plans Auction