Financial System Liquidity Keeps Money Market Rates Down

Financial System Liquidity Keeps Money Market Rates Down

Financial System Liquidity Keeps Money Market Rates Down

Financial system liquidity kept money market rates down as expected, declining further on Wednesday as funding pressures remained benign.

Compare with previous day, financial system liquidity opened higher at N335 billioon Wednesday from N234 billion.

The Overnight (OVN) and Open Buy Back (OBB) rates declined by 100 basis points (bps) and 138bps to 1.00% and 1.75% respectively.

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Analysts at Chapel Hill Denham said they expect funding pressures to remain minimal this week due to Open Market Operations (OMO) maturities estimated at N133.97 billion.

Meanwhile, sentiments were broadly mixed in the fixed income market. 

Analysts noted that front end rates were bullish as the Nigerian Treasury Bills (NTB) and OMO benchmark curve compressed by an average of 2bps to 1.92% and 2.07% respectively.Financial System Liquidity Keeps Money Market Rates Down

But analysts noted that the bond market was bearish, as traders continued to take profit amid depressed yields.

Market data indicates that the benchmark bond yield curve expanded by an average of 7bps to 6.52% as yields at the short (+8bps to 3.42%), intermediate (+2bps to 7.07%) and long (+13bps to 8.92%) end of the curve retraced higher.

Chapel Hill Denham however stated that the renewed apathy for duration suggests investors may already be positioning for the peak of the bond rally.

Nonetheless, Chapel Hill Denham does not expect a sizeable upward repricing of yields in the near term, given that the liquidity backdrop is still supportive.

At the NTB auction, the Debt Management Office (DMO) offered N113.97 billion across three tenors (91-day, 182-day and 364-day) to partly rollover maturing bills worth N134 billion.

Chapel Hill said demand was strong at N348.26 billion, implying a bid-cover ratio of 3.1x as against 1.3x previously.

The DMO took advantage of the strong demand to allot N133.97 billion which was more than the amount offered, while stop rates cleared lower by an average of 9bps to 1.79%.

The DMO sold N10.0 billion of 91-day at 1.08% (-1bp), N17.6 billion of 182-day at 1.49% (-1bp) and N106.4 billion of 364-day at 2.80% (-25bps).

Notably, the deficit estimate is lower than the N5.3tn estimate in the 2020 budget. The funding plan for the deficit is yet to be published, but we expect more details next week.

Financial System Liquidity Keeps Money Market Rates Down