OVN expected to settle lower this week as inflows outweigh outflows

OVER NIGHT LEND ING RATE IS expected to settle lower week-on-week as inflows from maturing OMO and PMA will outweigh outflows.

This week, market operators expect PMA and OMO maturities worth N596.34 billion, which will hit the system on the 3rd of October will reign supreme over any possible outflow in the market.

Last week, the overnight (OVN) rate moderated significantly dropping by 8.79 points to 9.29% during the week as the liquidity in the system improved.

It was generally expectTHE ed that rates will spike at the start of the week before trending downwards over the final few days of the week, the downtrend started on the first trading day before moderating to settle at 7.4 percent relative to 18.1 percent at the end of the prior week.

On the first trading day, the rate settled 13.4 points lower at 4.7 percent as maturities flowed into the system. Similarly, the rate settled pared by 0.1 points apiece over the next two trading days, before settling at 4.5 percent on Wednesday.

However, on the penultimate trading day of the week, the rate increased by 2.93 points at 7.4 percent as PMA Treasury bond and OMO auctions strained system liquidity.

Speaking on the outlook of the market, Nkechi Ezugho, fixed income trader said, “This week, PMA and OMO maturities worth N596.34 billion are expected to hit the system on the 3rd of October, out of which, PMA accounts for N123.97 billion; and OMO accounts for N472.37 billion. As a result, we expect the OVN rate to settle lower week on week.”

“The yield on the long tenor OMO bill ended lower at the auction during the week, which may be a signal of subsiding pressure on the CBN. This would be in line with market expectation that the yield environment in developed markets would result in increased interest in the country’s assets, resulting in yields moderating by the end of Q419. However, we still note that the maturity profile in Q4-19 and concerns over the persisting US-China trade war, which could result in weak capital inflows from FPIs as investors flock to safe-haven territories and assets, present significant upside risks,” she added.

Activities in the Treasury bills market were seemingly bullish with the average yield paring by 34 basis points to settle at 13.3 percent, as investors reinvested OMO maturities during the week.

The CBN held an OMO auction during the week, on the 26th, to mop-up liquidity. The auction was for instruments worth N302.42 billion: 84DTM bill of N0.30 billion, 184DTM bill of N2.12 billion, and 364DTM bill of N300.00 billion, which were sold at respective stop rates of 11.59 percent (same as previous auction), 11.79 percent (same as previous) and 13.48 percent (previously 13.50%).