Money Market Rates Trend Lower on Improved System Liquidity

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By Modupe Gbadeyanka

Last week, the money market rates closed lower, responding to financial system liquidity dynamics which recently has remained high at above N500 billion following the strategic intermittent mop-ups by the Central Bank of Nigeria (CBN).

The Open Buy Back (OBB) and Overnight (OVN) rates pointed south reflecting improvement in system liquidity which opened at N501.4 billion on Monday as OBB and OVN rates fell 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 percent respectively following a dearth of OMO auctions and consequential increase in system liquidity to N623.8 billion.

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 billion, Subscription: N1.2 billion, Allotted: N1.2 billion, Marginal Rate: 12.2 percent) and 245-day (Offered: N400 billion, Subscription: N963.9 billion, Allotted: N498.7 billion, Rate: 13.99 percent) maturities.

Hence, OBB and OVN rates inched 0.3ppts and 0.5ppts higher to 3 percent and 3.8 percent respectively.

According to analysts at Afrinvestor Research, as the impact of a moderating inflation continues to anchor yield expectation, they anticipate more subscriptions in longer tenored instruments as investors lock in higher rates ahead of yield moderation.

In the Treasury Bills market, performance was largely flattish as average rate across benchmark tenors trended higher albeit marginally on 3 of 5 trading sessions save for Tuesday. The bearish start of the week, with average rate rising 2bps to 13.1 percent, had been reversed on Tuesday following 4bps decline in average yield; but rose 3bps mid-week in the absence of a Primary Market Auction and stayed flattish till the end of the week. Rates closed 17bps lower by weekend.

In the following week, Afrinvestor Research anticipates 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.

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.

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