Cost of Funds Rise on Treasury Bills Sales
Obinna Chima
The Nigerian Interbank Offered Rates (NIBOR) rose by 3.25 per cent points weekon-week on Friday to 9.25 points on average.
This was driven largely by treasury bills sold at both primary and secondary market by the Central Bank of Nigeria (CBN), which soaked up liquidity from the system.
The central bank sold about N250 billion via open market operations (OMO) bills and N150.6 billion worth at an auction on Wednesday.
“The market has been very liquid from the spill-over from budget allocations and large matured bonds two weeks ago, but the outflows to fresh treasury bills sales drained some liquidity and caused rates to rise on Friday,” one dealer told Reuters.
The NIBOR rates dropped below 10 per cent three weeks ago, their lowest this year, because of a liquidity boost from a large cash injection into the banking system from retired bonds, treasury bills and budget allocations to government agencies.
Banks had a balance at the central bank of N494 billion on Friday compared with over N840 billion last Monday, traders said.
The secured open buy back (OBB) rose to nine per cent from six per cent, four percentage points below the central bank’s 13 percent benchmark rate. Overnight placement rose to 9.5 percent against six percent last week.
“We expect little change in lending rates next ... week, unless central bank embark on aggressive mopping up of liquidity” to reduce excess cash in the system, another dealer said. Bond Market
Yields on Nigerian short to mid-term tenor bonds trended southwards in the first three trading days of last week as bullish sentiment strengthened. Average yields therefore eased marginally settling at 13.9 per cent, 13.8 per cent and 13.6 per cent respectively from Monday to Wednesday.
But yields on longer term bonds remained attractively high though traded divergently as average yields rose successively to 16.2 per cent, 16.3 per cent and 16.5 per cent accordingly from Monday to Wednesday, an Afrinvest West Africa Limited report revealed.
The bullish performance in the short and mid-term tenors was however corrected on Thursday as average yields rose eight basis points to 13.7 per cent and further increased to 13.9 per cent on Friday.
The May bond auction worth N60 billion has been scheduled to hold this Wednesday for the re-opening of the FEB 2020, MAR 2024 and JUL 2034 instruments.
“Analysis of the yield curve clearly shows investors’ affinity for short to medium term bond instruments for fears of liquidity and uncertainty around future interest rate expectation; hence, the average 2.5 per cent yield-spread between the short and long end of the curve. While risk perceptions on polity and exchange rate in the economy is low, we expect the market,” Afrinvest analysts stated. Foreign Exchange Market
The naira was steady against the green back yet again last week, hence the nation’s currency closed flat at N199.10/$1 at the interbank market as the local currency traded within a tight range throughout the week. Similarly, the CBN’s clearing rate steadied at N197/$1 for the week.
In the BDC segment of the forex market last Monday, the value of the naira appreciated by 2.4 per cent to N217.56/$1 from the preceding week’s close of N223.10/US$1.00.
“Despite CBN’s continued intervention in the currency market, external reserves improved by 0.3 per cent to $29.7 billion. We believe this is linkable to the recent rally in the global prices of oil which have increased 13.5 per cent in the last four weeks. We expect the naira to continue to trade within the current level at the interbank segment of the forex market in the coming week,” Afrinvest added.