Money market rates pare gains as liquidity tightens

THE reign of low market rates in the previous week ended as the week started with a declining liquidity levels, causing transactions of various securities to trend higher.
Specifically, market rates had on Monday, inched higher by 46 basis points (bps) and 38bps to settle at 12.1 per cent and 12.4 per cent for Open Buy-Back (OBB) and the overnight.
The development, which was on the backdrop of a lower liquidity level of N233.4 billion against the previous week’s close of N260 billion, caused the OBB and overnight rates to close higher at 13 per cent and 13.3 per cent respectively on Tuesday, as liquidity level sustained downward trend.
Additionally, lower levels of liquidity in the system were sustained as the Deposit Money Banks (DMBs) struggled to meet customers’ foreign exchange demands and that of the Open Market Operations (OMO) auctions by the Central Bank of Nigeria (CBN).
Still, rates persisted in upward trend to 15 per cent and 15.3 per cent for the OBB and Overnight respectively, but declined 25bps to 14.7 per cent and 33bps to 15 per cent in that order as OMO bills worth N240.2 billion matured.
However, rates firmed up at 22 per cent (OBB) and 24 per cent (overnight) amid expectations of maturing three treasury bills instruments- 91, 182, and 365 days this week.
For Afrinvest Securities Limited, “we do not expect liquidity levels to improve as new issues of the same value will be auctioned on the same day. Consequently, as the CBN continues in its contractionary policy stance and DMBs continue to scramble to meet customer foreign exchange demands, rates may continue to trend higher in the coming week.
Meanwhile, the bond market performance last week was generally bullish as average yields rebounded to 15.4 per cent though short of the previous week’s average yields, which closed 16 per cent.
The improvement in bond performance was attributed due to recent perceived stability in the economy, despite the socio-political tension in the country.
But analysts at Afrinvest, said there is expectation that “bond performance will turn bearish in the coming weeks as uncertainties towards the elections become more pronounced.
Last week the Debt Management Office (DMO) re-opened the 15.54 per cent FGN FEB 2020, 14.20 per cent FGN MAR 2024 and 12.15 per cent FGN JUL 2034 bonds.
While N95 billion was offered at the close of the auction, a total of N91 billion was allotted as marginal rates settled at 16.5 per cent, 16.8 per cent and 17 per cent respectively.
“In comparison to February when these bonds were initially auctioned, subscription rate was lower in the latest auction at 90.3 per cent against 171.7 per cent in February for the 15.54 per cent FGN FEB 2020 bond, while it was higher for the FGN MAR 2024 and 12.15 per cent FGN JUL 2034 bonds at 160 per cent and 128.4 per cent against 117.9 per cent and 112.6 per cent respectively.
“Success rates for the bond auctions were also computed to be lower for the 15.54 per cent FGN FEB 2020 bond at 57.1 per cent against 97.1 per cent in February, while they were higher for the other bonds at 133.3 per cent and 103.3 per cent against 83.3 per cent and 70 per cent respectively.
“The result of the auction clearly reveals investors’ appetite for higher yields given the various political and economic uncertainties enveloping Nigeria’s investment space.
“However, given the stability in the country’s fiscal environment, lower oil prices and issues that may surround the up-coming elections, investors’ confidence seems to be pressured at this time.
Although these have been evident in the yield environment, we do not expect better performance in the coming weeks,” the securities company said.