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Low liquidity hikes money market rates


THE money market liquidity, including the net discount window position, which opened low at N74.2 billion last week, kick-started the run of high rates across securities.

  The development, which was on the backdrop of liquidity mop ups through the Open Market Operations (OMO) and primary market bond auction held the previous week, tightened further by deductions made by banks for RDAS auction. 

  In a weekly market update by Afrinvest Securities Limited, rates consequently spiked in the money market, with the Overnight and Open Buy Back (OBB) rates rising 11.7 per cent and 12.4 per cent from previous week’s close, to new highs of 88.3 per cent and 95 per cent. 

  The Nigeria Interbank Offered Rate (NIBOR) instruments also rose 2.8 per cent on average to close at an average of 34.7 per cent. 

  Liquidity however, improved mid-week after the CBN credited accounts of unsuccessful bidders at the RDAS auction on Wednesday, as rates declined across interbank money market instruments, with the Overnight and OBB closing at 15.3 per cent and 16.1 per cent respectively. 

  Liquidity was further boosted following the N44.2 billion OMO repayment, while T-bills worth N142.4 billion, which matured were subsequently rolled over through new issues of the 91, 182 and 364-day Treasury Instruments.   

  The Overnight and OBB money market rates closed the week at 23.3 per cent and 22.4 per cent, a moderation from 80.2 per cent and 76.7 per cent close last Friday.

  “We anticipate that the closure of the rDAS/wDAS forex window will be positive for the naira money market, as banks will now be relieved of the burden of setting aside a huge chunk of naira liquidity two days before every auction. 

  “However, a new norm of intraday volatility fluctuations in rates may set in, as demand for foreign exchange will now be fulfilled on ‘need basis’ during trading sessions at the interbank market,” the securities company said.

  Meanwhile, the FGN Bond market was characterized with mixed sentiments last week as the market witnessed some bargain hunting positioning, while some dealers also took profit.   

  Secondary market trading of FGN bonds had commenced the week bearish with yields rising and prices declining, while a strong rally, driven by bargain hunting at the short end of the curve later pressured yields downward. 

“Yields rose at a faster pace at the short end of the curve where trading activity was concentrated for the rest of the trading sessions of the week as investors took profit. 

 “This was in converse to the bargain hunting on longer term instruments where yields declined. Yields rose by a marginal two basis points week-on-week on average to 15.9 per cent, while the FGN bond remained with some element of inversion as some short term instruments still traded at a higher yield relative to longer maturing debts. 

”Despite the prevailing high yield, which offers bargain opportunities, especially in short term debts, we expect sentiment in the bond market to stay bearish in the interim due to the prevailing credit risk stemming from the weakened fundamentals and political uncertainty. 

  “The recent stability in the foreign exchange market, albeit positive, may not necessarily drive foreign portfolio investment inflow to the bond market as potential investors remain wary of the prevailing risks. 

  “Nevertheless, the domestic funds flow support the bond market enjoys relative to equities will serve as a balancing effect for yields in the near term,” Afrinvest added.

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