By Babajide Komlafe
The Central Bank of Nigeria (CBN) is expected to sustain its liquidity mop up efforts this week in response to inflow of N565 billion into the interbank money market.
Last week, the interbank money market recorded inflow of N1.28 trillion which occasioned excess liquidity in the market. The inflow comprised N693.53 billion from statutory allocation disbursed to the three tiers of government by the Federal Accounts Allocation Committee (FAAC) and N565 billion from matured treasury bills (TBs). The matured TBs comprised N121.88 billion worth of matured primary market TBs and N463.98 billion worth of secondary market (Open Market Operation, OMO) TBs.
In order to mop up the resulting excess liquidity, the CBN offered N350 billion worth of OMO TBs, which was oversubscribed by 214 percent, with total subscription of N1.1 trillion while the CBN sold N430 billion.
Similarly, the primary market TB auction conducted by the CBN during the week, recorded 421 percent oversubscription. Total public subscription to the N112.5 billion worth of bills on offer CBN stood at N586.6 billion, while the apex bank sold N112.5 billion. As a result the primary market TBs were sold at lower stop rates of 10.8 percent for 91-Days bills, 11.0 percent for 182- Days bills, and 12.9 percent for 364-Days bills, compared with previous rates of 11.1 percent , 11.6 percent and 13.2 percent respectively.
As a result of the excess liquidity triggered by the inflow, average short term cost of funds in the interbank money market fell by 643 basis points (bpts) with interest rate on Collateralised (Open Buy Back, OBB) lending falling by 629 bpts to 5.14 percent last week from 11.43 percent the previous week. Similarly, interest rate on Overnight lending fell by 657 bpts to 5.86 percent last week from 12.43 percent the previous week.
Analysts however opined that the movement of interbank interest rates this week will be largely influenced by anticipated liquidity mop up by the CBN in response to expected inflow of N565 billion, comprising N338.5 billion worth of maturing TBs and N226.5 billion worth of maturing FGN bonds.
According to analysts at Lagos based Zedcrest Securities Limited, “With combined inflows of N565 billion from OMO and FGN Bond maturities, the CBN may look to ramp up its mop-up activities with multiple OMO auctions in the coming week. We maintain a cautious outlook in the interim as increased supply could push secondary market rates higher.”
Similarly, analysts at Lagos based Afrinvest Limited said: “
In the coming week, we expect the CBN to sustain its OMO auction given that OMO maturities worth N338.5 billion will impact system liquidity levels. Also, we envisage that elevated system liquidity levels would continue to drive rates lower in the secondary TBs market.”
However, analysts at Lagos based Cowry Asset Management Limited expressed optimism of further moderation in cost of fund, saying, “In the new week, TBs worth N315.99 billion will mature via the secondary market, which in addition to the effect of the recently disbursed FAAC allocation of N693.53 billion, should result in boost in financial system liquidity and resultant moderation in interbank offered rates.”
DMO N150 billion bond auction to record oversubscription
Meanwhile, the Debt Management Office will this week offer N150 billion worth of FGN bonds to investors, with analysts projecting oversubscription due to rising appetite for fixed income instrument.
The bond auction conducted by the DMO in September recorded 38 percent oversubscription with total subscription of N207.5 billion to the N150 billion worth of bonds offered by the DMO.
Projecting that this trend will be repeated at the FGN bond auction to be held this week, analysts at Cowry Asset Management Limited said: “In the new week, Debt Management Office will issue bonds worth N150 billion, viz: 12.75% FGN APR 2023 (5-Yr Re-opening) worth N50 billion, FGN APR 2029 (10-Yr Re-opening) worth N50 billion and FGN APR 2049 (30-Yr Re-opening) worth N50 billion respectively. We expect the bonds stop rates to moderate amid high demand for fixed income securities.”
Making similar projection, analysts at Zedcrest Securities, said the bullish run recorded last week in the secondary market for FGN bonds, is expected to spill over into the FGN bond auction this week resulting to oversubscription.
“We expect this bullish run to slow down into the coming week, as investors assess the prospect of supply from the monthly bond auction scheduled later in the week. We maintain a bullish outlook however as the offer amount of N150bn at the auction might be insufficient to meet rollover demand from investors receiving maturities of N234 billion.”