N149bn negative system liquidity takes toll on fixed income instruments

The N149 billion negative liquidity which opened trading on Monday continued to have its toll in the money and fixed income markets, lowering yields on short to midterm instruments.
Investment appetite of investors in the money market and fixed income instruments continued to reflect mixed developments driven by money supply.

At the close of business on Tuesday, money market rates expanded across all tenors on Tuesday with the 3month Nigerian Inter Bank Order rate (NIBOR) increasing by 109 bps to 21.13 per cent.

The 1 month and 6month NIBOR rates also increased by 65bps and 23bps to 16.74 per cent and 23.30 per cent respectively.

The trend on Tuesday was driven by developments as trading opened on Monday. Subsequent the Open Market Operation (OMO) bill sales of .N3billion and .N62billion at 18 per cent and 18.6 per cent stop rates respectively by the apex bank, system liquidity ended

Monday’s session at c.N149bn negative, pushing money market rates further up.
Both the OBB and OVN on Monday rose to 18 per cent and 19 per cent levels against previous session’s close of 14 per cent and 15 per cent levels respectively.

We expect improvement in system liquidity from FAAC inflows, while It is expected that activity in subsequent session to be influenced by liquidity level.

Meanwhile, Investors were largely bullish in the bond market on Tuesday as yields contracted across the curve .The decline in yields was more prominent on the 5yr benchmark bond, down 24bps to 15. 59 per cent.

Yields on the 7yr and 10 year benchmark bonds respectively declined by 18bps and 8bps to 15.62 per cent and 15.91 per cent respectively.

However, in spite of limited system liquidity, the bond market opened the week Monday on a bullish note as increased demand pushed yields down mostly on long –dated instruments .On the average, yields contracted by 14bps across tenors.

While yields on the 5yr and 7yr benchmark bonds were flat at 15.84 per cent and 15.80 per cent respectively on Monday, yields on the 10 yr. benchmark bonds contracted by 22bps to berth at 15.99 per cent.