With the Central Bank of Nigeria (CBN) scheduled to repay N99.2 billion maturing treasury bills this week and only rolling over N49.6 billion in line with the FGN’s debt strategy to reduce domestic borrowings, analysts are anticipating a further moderation in rates at the auction and hence expect the secondary market to remain more attractive.
Performance at the treasury bills market was largely bullish as average rate across benchmark instruments moderated 30bps w-o-w to close at 12.5 percent. Average rate opened the week at 12.8 percent, fell 2bps to 12.6 percent on Tuesday and stayed flat till midweek. In the absence of a Primary Market Auction or repayment, the bullish sentiment filtered into Thursday, as average rate declined 40bps to 12.2 percent before closing the week at 12.5 percent.
On the other hand, money market rates – open buy back (OBB) and overnight rates (ON)- trended higher on three of five days despite improvements in system liquidity.
OBB and ON rates kicked off the week 8.7ppts and 8.4ppts higher at 16.5 percent and 17.4 percent respectively following a decline in system liquidity to N66.8 billion on Monday from N143.6 billion recorded the previous Friday. OBB rose to 17.0 percent on Tuesday and declined slightly to 16.7 percent on Wednesday, resulting from inflow of FAAC allocation to the states and LGAs estimated at about N250.0 billion, while ON rose to 18.0 percent and inched 4bps higher to 18.4 percent on Wednesday.
By Thursday, rates crashed significantly as N267.0 billion worth of maturing OMO instruments hit the system. Hence, OBB and ON rates fell 8.9ppts and 10ppts to 7.8 percent and 8.4 percent respectively. The effect of the inflow on system liquidity and rates largely offset the impact of OMO mop-ups on that day. A total of N300.0 billion was offered through the 112-day instrument (N50.0bn) and 231-day (N250.0bn). However, only N113.4 billion was sold as both instruments were undersubscribed.
At week close, the CBN conducted another N37.0 billion OMO mop up in response to perceived excess liquidity in the system with the OBB and ON climbing to close the week at 17.2 percent and 19.7 percent.
In the coming week, we anticipate more OMO issuances as inflows from Wednesday maturing FGN May 2018 bond (N300.0bn) as well as N176.3bn OMO and N99.2bn T-Bills maturity on Thursday hit the system.