Banks Dump CBN Special Bills to Ease Funding Pressure
Central Bank of Nigeria’s (CBN) Special bills were heavily traded as Nigerian banks sold off a sizeable chunk of their portfolios to the secondary market to ease funding pressure.
However, the CBN special bill gained 53 basis points to close the week at 9.7%. The financial system liquidity position remains weak amidst lower inflow from open market operation bills. Also, deposit money banks have been accessing the CBN standing lending facility to close liquidity gaps.
In the money market on Friday, there was pressure on interbank rates as the Open Buy Back (OBB) and Overnight (O/N) rates increased by 5.33% points and 5.68% points to 22.33% and 22.93% respectively.
The overnight rate expanded by 768 basis points week on week to 22.9%, as debits for cash reserve ratio, Nigerian Treasury Bill net issuances of NGN79.22 billion, and CBN’s weekly auctions outweighed inflows from open market operation (OMO) maturities valued at NGN80.00 billion.
“In the coming week, we expect the OVN rate to temper from current levels but remain elevated, as expected inflows from OMO maturities (NGN46.00 billion) may not be sufficient to offset funding pressures for the week”, Codros Capital said.
Meanwhile, trading activities in the Treasury bills secondary market turned bullish this week following demand for the mid and long-dated OMO bills.
Cordros analysts attribute this to the increased liquidity in the interbank market on Wednesday. Consequently, average yields across all instruments contracted by 13bps to 8.2%.
Across the market segments, the average yield at the OMO segment declined by 33bps to 9.7%. In contrast, average yields at the NTB segment sustained its bearish run and expanded by 10bps to 6.4%.
At the primary market auction (PMA), the CBN offered bills worth NGN91.27 billion with allotments of NGN5.06 billion of the 91-Day, NGN10.09 billion of the 182-Day and NGN164.11 billion of the 364-Day – at respective stop rates of 2.50% (previously 2.50%), 3.50% (previously 3.50%), and 9.64% (previously 9.65%).
Also, the CBN sold NGN20.00 billion worth of bills to market participants at this week’s OMO auction and maintained stop rates across the three tenors, as with previous auctions.
“We still maintain our view of higher average yields on T-bills, considering the expected dearth in system liquidity”, analysts said.
Meanwhile, bearish sentiments returned to the bonds market as investors’ demand weakened following sustained expectations of higher yields.
Specifically, average yields expanded by 6bps to 12.3%. Across the benchmark curve, average yield expanded at the short (+4bps), mid (+10bps) and long (+1bp) segments following sell-offs of the JAN-2026 (+24bps), NOV-2029 (+20bps) and JUL-2045 (+30bps) bonds, respectively.
In the coming week, analysts at Cordros Capital said they expect the release of the May 2021 CPI forecasted to print at 18.01% to shape market sentiments and the direction of yields.
“In the longer term, we maintain our expectations for higher yields, as institutional investors’ preference for higher-yielding short to mid-term instruments persists”, Cordros said.
In a related development, Nigeria’s FX reserves sustained its decline, dipping USD122.75 million w/w to USD34.05 billion – the lowest since November 2017.
Meanwhile, the naira was flat at NGN410.80/USD and NGN502.00/USD at the Investors and Exporters window (IEW) and parallel market, respectively.
At the IEW, total turnover decreased by 29.7% week to date to USD538.63 million, with trades consummated within the NGN400.00 – 420.77/USD band.
In the forwards market, the rate appreciated across the 1-month (+0.1% to NGN413.33/USD), 3-month (+0.2% to NGN419.51/USD), 6-month (+0.2% to NGN428.36/USD) and 1-year (+0.3% to NGN446.56/USD) contract.
“We expect improved liquidity in the IEW over the medium term, given the higher oil prices and an expected increase in crude oil production volume. Accordingly, we expect the naira to remain relatively range-bound at NGN410.00/USD – NGN415.00/USD at the IEW”, Codros Capital said.
Banks Dump CBN Special Bills to Ease Funding Pressure
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