Improved system liquidity to steady rates as CBN staggers mop-ups

The improved system liquidity in the past weeks is expected to continue into the new week and keep rates steady according to an analyst.

Money market rates had moderated in recent weeks with liquidity remaining high at above N500 billion, following the strategic intermittent mop-ups by the Central Bank of Nigeria (CBN) And the money market last week responded largely to the financial system liquidity dynamics as open buyback (OBB) and overnight (ON) rates trended lower week-on-week (w-o-w).

Specifically, system liquidity opened at N501.4 billion Monday with OBB and ON rates falling to 3.3 percent and 3.5 percent, down 0.4ppt and 0.5ppt from the previous week’s close.

This momentum was sustained till midweek as rates fell to 2.7 percent and 3.0 percent respectively following a dearth of OMO auctions and consequential increase in system liquidity to N623.8bn.

On Thursday however, system liquidity opened at a significantly higher level of N1.1 trillion, necessitating N500 billion OMO mop-up by the CBN across 112-day (Offered: N100.0bn, Subscription: N1.2bn, Allotted: N1.2bn, Marginal Rate: 12.2%) and 245-day (Offered: N400.0bn, Subscription: N963.9bn, Allotted: N498.7bn, Rate: 13.99%) maturities.

Hence, OBB and OVN rates inched 0.3ppts and 0.5ppts higher to 3.0 percent and 3.8 percent respectively. As with other weeks, investor appetite for OMO securities, especially the long-dated maturities, remained noticeable in the pattern of subscription.

“As the impact of a moderating inflation continues to anchor yield expectation, we anticipate more subscriptions in longer tenured instruments as investors lock in higher rates ahead of yield moderation,” analysts at Afrinvest noted In the treasury bills market, performance was largely flattish as average rate across benchmark tenors trended higher albeit marginally in three of five trading sessions save for Tuesday.

Average rate rose 2bps to 13.1 percent Tuesday following 4bps decline in average yield. It rose 3bps mid-week in the absence of a Primary Market Auction and stayed flattish until the end of the week. Rates specifically closed 17bps lower by the weekend.

“In the following week, we anticipate a largely bullish performance in the Treasury Bills Market sequel to the reduction in the amount to be rolled over in line with the planned reduction and substitution of expensive domestic short term debt with cheaper long term foreign debt by the Federal Government, The Afrinvest analysts projected, noting that a total of N116.9 billion across the 91-day, 182-day and 364-day instruments will be maturing while only N58.4 billion is scheduled to be rolled over.