Nigeria’s money market concluded the week under considerable liquidity strain, primarily due to the absence of Open Market Operations (OMO) or Treasury Bill (T-bill) maturities. This meant no new liquidity injections entered the financial system, compelling banks and other financial institutions to intensely compete for limited available funds. The result was sustained pressure across short-term and interbank funding markets.
Despite the prevailing liquidity squeeze, the Overnight Nigerian Interbank Offered Rate (NIBOR) exhibited a marginal decline, easing by 4 basis points (bps) to close at 32.71 per cent from 32.75 per cent the previous week. This slight dip, according to market analysis, might indicate a degree of stability in immediate overnight conditions, potentially reflecting targeted efforts by some market participants to manage end-of-week positions.
However, the strain became more pronounced across longer tenors within the NIBOR curve. The 1-month NIBOR rose to 27.86 per cent (+22bps), the 3-month NIBOR increased to 28.14 per cent (+10bps), and the 6-month NIBOR advanced to 28.66 per cent (+13bps). These increases underscore persistent funding pressures that extend beyond immediate overnight needs, indicating that financial institutions are paying more to secure funds for longer durations in the interbank space.
Similarly, key short-term borrowing benchmarks also trended upward, reflecting the elevated cost of overnight borrowing. The Open Buy Back (OPR) rate settled at 32.33 per cent, up from 31.50 per cent the previous week, while the Overnight (O/N) rate closed at 32.67 per cent, an increase from 32.17 per cent.
In the fixed income segment, the Nigerian Interbank Treasury True Yield (NITTY) curve presented a mixed picture across different maturities. The short to medium end of the curve saw upward movements. The 1-month NITTY advanced to 16.41per cent (+36bps), the 3-month tenor to 17.17 per cent (+60bps), and the 6-month tenor to 18.16% (+28bps). These increases are largely a reflection of the tight liquidity environment, pushing yields higher as investors demand greater compensation for holding shorter-term government debt.
Interestingly, the 12-month NITTY bucked this trend, easing by 18bps to 18.66 per cent. This marginal moderation in longer-term expectations could signal cautious positioning by investors, perhaps anticipating a slight easing of monetary conditions further down the line, or simply a rebalancing of portfolios amidst the current yield environment.
Activity in the secondary Treasury Bills market remained relatively subdued, directly attributable to the overarching tight liquidity. Nevertheless, selective interest in short-dated papers resulted in yield compression at the short end of the curve. This demand helped drive the average T-bill yield lower by 57bps week-on-week, settling at 17.82 per cent. This indicates that while overall liquidity was scarce, certain investors were willing to accept lower yields for very short-term, highly liquid instruments.
Looking forward, the Nigerian money market is poised to receive a much-needed boost in system liquidity. A significant injection of N326.88 billion in Treasury Bills maturities is expected to hit the financial system next week. According to analysts, this substantial inflow is highly likely to ease the immediate short-term funding constraints that have plagued the market.
This impending liquidity injection is expected to provide considerable relief to banks and could potentially drag down interbank funding rates, including NIBOR, OPR, and O/N rates, in the near term. Such an easing would be welcomed by financial institutions, reducing their cost of borrowing and potentially supporting increased lending activities.
Despite this anticipated relief, market participants are advised to remain cautious. This is as the broader funding environment continues to be influenced by the Central Bank of Nigeria’s (CBN) sustained tight monetary policy stance and ongoing liquidity sterilisation measures.
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