Yield on 364-Days TBs to maintain downward trend
By Babajide Komolafe
The interbank money market is expected to experience intense scarcity of funds this week following the liquidity mop up of N422 billion by the Central Bank of Nigeria (CBN) last week.
Last week the market experienced inflow of N413 billion from matured treasury bills (TBs). The effect of the inflow on cost of funds was however short lived as the CBN stepped up its liquid mop up activities by issuing special Open Market Operations (OMO) TBs as well as N130 billion worth of Primary Market TBs.
Consequently, cost of funds, which trended downward in the first half of the week, rose sharply on Friday, with average short term interest rate rising by 119 basis points (bpts) over the level in the previous week.
According to the Financial Market Dealers Quote (FMDQ), interest rate on Collateralised lending (Open Buy Back, OBB) rose by 122 basis points to 25.83 per cent on Friday, from 13.67 per cent the previous week. Similarly, interest rate on overnight lending rose by 118 bpts to 26 per cent from 14.25 per cent the previous week.
Financial market analysts opined that this trend might continue this week especially in view of the expected marginal inflow of N14.1 billion from maturing OMO TBs this week.
According to analysts at Lagos based Cowry Asset Management Plc, “This week, there will be maturing bills via Open Market Operations (OMO) totalling N14.13 billion, viz: 167-day bills worth N0.55 billion; 170-day bills worth N0.48 billion, 174-day bills worth N0.23 billion, 175-day bills worth N0.095 billion, 177-day bills worth N0.065 billion, 184-day bills worth N0.16 billion, 185-day bills worth N1.07 billion, 188day bills worth N2.09 billion, 189-day bills worth N3.09 billion, 192-day bills worth N0.22 billion, 199-day bills worth N3.50 billion and 206-day bills worth 2.32 billion. As a result of the limited expected inflows at the interbank market, we expect some pressure on the financial system liquidity with resultant increase in rates.”
Yield on 364-Days TBs to maintain downward trend
Meanwhile, analysts at Ecobank Nigeria said that the downward trend in the interest rate on 364-Days TBs witnessed in the second and third quarters will persist in the fourth quarter.
In a review of movement in interest rates on TBs, Ecobank Research analyst, Mr. Kunle Ezun noted that interest rate on 364-Days TBs declined by 325bpts to 15.73 per cent at the end of the third quarter from 18.98 per cent at the beginning of the second quarter, adding that this may further dropped to 14 per cent to align with the Monetary Policy Rate (MPR) which is presently at 14 per cent.
Ezun said: “Interest rate on 364-day treasury bills may have triggered a conversation on interest rate direction for securities trading and pricing in Nigeria.
“The interest rate performance on 364-day treasury bills rate is a reflection of recent market development relating to Federal government decision to sell dollar-backed treasury bills and a possible $5.5 billion Eurobond issuance in November 2017.
“The 364-day treasury bills rate fell from a year to date high of 18.980 per cent in April to 15.7253 per cent in October 2017, thereby indicating 325 basis points drop over 6 months period.
“The Treasury bills, which are issued more frequently in standard benchmarks: 91-D, 182-D and 364-D and for refinancing purpose is about N4,211.85 billion year-to date in 2017.
“The CBN issued OMO bills to the tune of N4,722.34 billion of various maturities at a weighted average rate of 18 per cent 32 per cent year to date in 2017.
Interest rate on 364-day treasury bills is on a downward trend, But how low can it go? The CBN has kept policy interest rate high at 14.0 per cent to anchor inflation and possibly ensure positive real return on NGN denominated government securities in a high inflationary environment.
“Interest rate on 364-day treasury bills will continue to drop, and possibly align with the policy interest rate of 14 per cent in Q4 2017. However, if the CBN decides to tweak its monetary policy stance to support economic growth, the interest rate might drop further down.”
Naira appreciates as CBN sustains intervention with $195 million
The naira last week appreciated in parallel exchange market as well as the Investors and Exporters (I&E) window, while the Central Bank of Nigeria (CBN) sustained its intervention in the foreign exchange market with injection of $195 million.
Financial Vanguard survey revealed that the naira appreciated by N2 in the parallel market as the market exchange rate dropped to N363.5 per dollar on Friday from N363.5 per dollar the previous week. The appreciation was driven by decline in demand pressure due to increase dollar supply into the economy.
At the I&E segment, the naira appreciated by N1.07 as the indicative exchange rate dropped to N359.56 per dollar on Friday from N360.64 per dollar the previous week.
On Monday the CBN continued its intervention by injecting $195 million into various segments of the interbank foreign exchange market.
Confirming the injection, Acting Director, Corporate Communications Department at the Bank, Mr. Isaac Okorafor said that the apex bank offered the $100 million to the wholesale segment, while the Small and Medium Enterprises (SMEs) segment received $50 million. The invisibles segment, comprising tuition fees, medical payments and Basic Travel Allowance (BTA), among others, received $45 million.
Okorafor reiterated the apex Bank’s determination to sustain the provision of foreign exchange with a view to ensuring liquidity in the market and enhance accessibility and affordability for genuine end users.
He said that the apex bank remained determined to achieve its objective of rates convergence, hence the unrelenting injection of intervention funds into the foreign exchange market.