Overnight lending rate drops by 10%

…As FG redeems $413m T.bill from Eurobond
Trading at the overnight lending rate dropped by 242 basis points last week to 10 per cent, against prior week’s close of 12.42 basis points, as system liquidity, increased to N359.72 billion on average.

Even as the Federal Government of Nigeria through the Debt Management Office (DMO), has paid off about 130 billion naira ($413 million) worth of treasury bills maturing last week instead of rolling over the debt as it has done in the past, traders said.

Analysts at Cordros Capital said the increase in liquidity was driven by inflows from matured treasury bills and Open Market Operation (OMO) bills worth N129.99 billion and N109.38 bn, respectively,

They maintained that the N223.99bn FAAC disbursement and foreign exchange refunds also contributed to the increased liquidity in the system last week.

Analysts at Cordros Capital also said the Central Bank of Nigeria (CBN) attempted to mop-up excess liquidity, selling NGN526.49 billion via OMO auction.

“With liquidity at current levels (N500 billion) and next week’s inflow from maturing OMO bills (N152.93 billion), we expect the CBN to conduct OMO auctions to mop up excess liquidity, causing the overnight lending rate to contract,” they explained.

On the Treasury Bill market, they said the market recorded a persisted bullish sentiments, as average yield fell by five basis points to 14.13per cent.

“There were contractions at all ends (short: -one basis points, mid: -six basis points and long: -six basis points) of the curve, with the highest demand seen in the41D (-73bps), 146D (-36 bps), and 272D (-69bps) notes.

“Meanwhile, at this week’s NTB auction, the CBN reduced the offered amount of the 364-day bill (from N222.08 bn to N52.00 bn) and increased the offered amount of both the 91-day (from N7.89 bn to N13.00 bn) and 182-day (from N30.00 billion to N64.99bn) bills.

Reflecting the increased liquidity position and reduced supply (of the one-year bill), yields closed lower across the 91-day (11.85%; previously 11.95%), 182-day (13.50%; previously 13.65%), and 364-day (13.50%; previously 13.70%) bills – with respective allotments of N13.00bn, N65.91bn and N52.00 bn.

“Expected squeeze in liquidity position suggests marginally higher yield in the meantime.

“On the bond market, the proceedings in the bond market were mixed, as average yield declined by less than 1 bps to 13.65per cent.. Yields closed marginally lower at the short (-1 bps) end of the curve, following interest in the FEB-2020 (-14 bps) bond. Yields across the mid and long ends were flat.

“We expect activities in this space to broadly reflect liquidity position culminating in a mixed session next week.

‘ That said, we reiterate our expectation for lower yields in the short to medium term, reflecting, one, falling inflation rate, two, strengthening expectation of monetary easing, and three, the FGN’s new debt management strategy,” analysts at Cordros Capital added.