…Overnight rate crashes by 577 bps w/w, to 0.6%
SAT, 14 NOV, 2020-theGBJournal-The overnight (OVN) rate crashed by 577 bps w/w, to 0.6%. The rate was largely depressed this week, in the absence of significant funding pressures on the system, and as inflows from OMO maturities (NGN243.77 billion) boosted system liquidity. Notably, total liquidity in the system averaged NGN342.94 billion (last week: NGN792.38 billion) this week, highlighting the effects of last week’s significant outflows (CRR debits: NGN314.90 billion; FX Retail auction: NGN320.00 billion).
In the coming week, we expect the OVN rate to expand, as expected inflow from OMO maturities (NGN281.45 billion) may not be sufficient to limit the impact of outflows on the system.
Activities in the Treasury bills market were muted this week, following continued investor apathy given the current yield levels, and as market participants focused their attention on Wednesday’s NTB PMA. Nonetheless, the average yields at the NTB and OMO segments declined by 40bps and 2bps to 0.1% and 0.2%, respectively.
This is as market participants covered for lost bids at the PMA, and as banks reinvested maturities in short and long-dated OMO instruments. Against the foregoing, the average yield across instruments in both markets declined by 18bps to 0.2%.
At the PMA, demand was sizeable, relative to the limited supply, as there was an oversubscription of 3.6x on the NGN167.81 billion worth of bills on offer.
The auction closed with the CBN rolling over NGN19.78 billion of the 91-day, and selling NGN10.00 billion (amount on offer: NGN40.09 billion) of the 182-day and NGN138.03 billion (amount on offer: NGN107.94 billion) of the 364-day, at respective stop rates of 0.035% (previously 0.341%), 0.15% (previously 0.50%), and 0.30% (previously 0.98%).
We expect activities in the T-bills market to remain quiet, as investors remain unimpressed by the unattractive yields in the space.
Meanwhile, sentiments at the Treasury bonds market were mixed, with the bears dominating, following reduced liquidity in the system, and as the market reacted to PENCOM’s directive to PFAs to reclassify bonds held-for-trading as variable income instruments.
Consequently, the average yield across instruments expanded by 19bps to 4.1%. Across the benchmark curve, average yield expanded at the short (+6bps), mid (+33bps) and long (+7bps) segments, following profit-taking on the MAR-2024 (+102bps), FEB-2028 (+46bps) and APR-2037 (+20bps) bonds, respectively.
Next week, we expect investors’ focus to be shifted to the PMA on Wednesday, as the DMO is set to offer instruments worth NGN80.00 billion through re-openings of the 12.50% MAR 2035 and 9.80% JUL 2045 bonds. We still expect sizeable activity in the secondary market, as investors cover lost bids at the auction which is likely to be oversubscribed.
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