This week, liquidity in Nigeria’s financial system remained tight despite the N50 billion OMO-bill maturity and the gradual absorption of the N1.72 trillion FAAC inflow. As a result, money market rates trended higher, with the Overnight NIBOR climbing 2.14 percentage points week-on-week to 30.68%. The 1-month and 3-month NIBOR rates also advanced, rising by 1.19 percentage points and 0.42 percentage points, closing at 27.92% and 27.78%, respectively. However, the 6-month NIBOR bucked the trend, easing slightly by 0.30 percentage points to 27.70%. Key monetary rates, including the OPR and OVN, also increased, with the OPR and OVN rates climbing by 33bps and 34bps, settling at 27.09% and 27.67%, respectively.
Thank you for reading this post, don't forget to subscribe!The liquidity squeeze has prompted analysts to point out the growing financial pressure on businesses and consumers. “The rise in NIBOR suggests that there is a continued strain on liquidity in the system, and this has made borrowing more expensive,” said Dr. Amina Okpara, an economist with the Central Bank of Nigeria. “Tight liquidity is often a sign of underlying economic challenges, such as slow growth in domestic money supply or external pressures like rising energy costs.”
In contrast to the rise in money market rates, yields in the Nigeria Treasury Bills (NITTY) market trended downward across all tenors, reflecting expectations of lower money market yields and a marginal decline in stop rates at the latest primary market auction. Consequently, 1-month, 3-month, 6-month, and 12-month NITTY rates closed at 17.39%, 17.60%, 18.85%, and 21.29%, respectively. The secondary market for Treasury Bills also witnessed a bullish run, as demand for short- and mid-tenor instruments pushed average yields 35 basis points lower to 19.16%.
Despite the liquidity strain, investor appetite in the Treasury Bills market remained strong, with total subscriptions for the NTB primary market auction soaring to N1.92 trillion, resulting in a bid-to-offer ratio of 2.32x. “The demand for short-term instruments, despite the overall liquidity squeeze, signals strong investor confidence in Nigeria’s short-term economic prospects,” explained Dr. Bamidele Lajide, a financial market analyst. “Even though the Central Bank is controlling supply by offering fewer instruments, the strong demand indicates that investors are keen to capitalize on relatively higher yields.”
At the recent OMO-bills auction, the Central Bank of Nigeria (CBN) conducted a sale offering N600 billion across 355-day and 362-day tenors. Demand was strong, with total subscriptions reaching N1.88 trillion, and the CBN sold N1.68 trillion. Stop rates declined slightly from the previous auction, settling at 19.19% and 19.45%.
Looking ahead, the market is gearing up for N162.17 billion worth of T-bill maturities, and the CBN is set to offer N550 billion at the upcoming auction across various maturities. Economists predict a modest decline in yields, as interest rate expectations point downward. “We anticipate a marginal decline in market yields due to expectations of reduced pressure on interest rates,” said Dr. Okpara. “However, we also expect investor participation to remain strong as investors continue to seek attractive returns in a relatively high-yield environment.”
In conclusion, while the liquidity squeeze continues to persist, analysts are optimistic about strong investor participation in upcoming T-bill and OMO-bill auctions. The easing of Treasury yields and the continued demand for short-term instruments may provide some relief for the market, but tighter liquidity conditions could continue to pose challenges for borrowing costs in the short term.
