SAT, JULY 22 2023-theGBJournal |In line with our expectations, the overnight (OVN) rate increased significantly by 19.4% w/w to 21.0%, as the combined impact of banks sterilizing excess funds and debits for FGN bond auction (N657.83 billion) outweighed this week’s inflows from FGN bond coupon payments (N155.95 billion).
As a result, the average system liquidity closed lower this week at a net long position of N103.19 billion (vs a net long position of N708.40 billion in the previous week).
Next week, we expect the OVN rate to temper from current levels as the expected inflows from the June FAAC allocation (N561.49 billion) and FGN bond coupon payments (N126.00 billion) will boost system liquidity.
Meanwhile, proceedings in the Treasury bills secondary market remained bullish this week as participants looked to invest their excess funds in the space.
As a result, the average yield across all instruments declined by 192bps to 4.3%. Across the curve, the average yield contracted at the short (-329bps), mid (-218bps) and long (-148bps) segments, following buying interest on the 34DTM (-381bps), 139DTM (-222bps), and 237DTM (-256bps) bills, respectively.
Following the anticipated inflows into the system next week, we envisage a higher demand for T-bills, which we expect will drive yields lower in the secondary market.
Furthermore, we expect market participants’ focus to be shifted to the NTB PMA holding on Wednesday (26 July), with the CBN expected to roll over NGN264.33 billion worth of instruments.
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