• Friday, March 29, 2024
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BusinessDay

Financial market to see excess liquidity as CBN issues N4.1trn special bills

CBN’s hammer dangling over owner of abokifx over exchange rate breaches

Nigeria’s financial market would be awash with liquidity this week as the Central Bank of Nigeria (CBN) is expected to roll over N4.1 trillion special bills.

Special bills are new liquidity management tools introduced by the CBN on December 2, 2020, to boost financial markets liquidity and support economic recovery. It is about converting cash deposits of banks with the CBN above the 27.5% reserve requirements into tradable 90-day securities.

Also, maturing Open Market Operation ( OMO) worth N130.5 billion is expected to hit the market this week. Inter-bank system liquidity closed at N565.8 billion last week.

Consequently, investors are expected to position for a higher yield. “we expect continued cherry-picking of papers with higher yields across the curve, hinged on a robust interbank system, following expected inflows of N130.5bn from maturing OMO-bill and an NGN4.1tn worth of Special-bill, which could be rolled over at the discretion of the CBN,” analysts at Greenwich Merchant Bank said.

The Fixed Income Market persisted on a bullish trend, following continued cherry-picking across the market. The traction in the market lingered as investors sought to obtain higher-yielding papers into their folds. Resultantly, the average yield in the fixed income market eased by 16bps to settle at 5.6%, from 5.8% the prior week, according to a report by Greenwich Merchant Bank.

Last week, The NT-bill secondary market remained relatively muted, shedding a marginal 2bps to close the week in the blues, following investors’ appetite for the 29 JUL 2021 bill (-48bps). Thus, the average yield at the NT-bill market settled at 1.49% from 1.51% in the prior week. Similarly, the OMO-bill market closed positive, thanks to robust bids at the belly and the tail of the curve, thereby, easing the average OMO-bill yield by 27bps to 6.1% from 6.4%.

The CBN last week offered bills worth N128.2bn, at the Primary Market Auction (PMA), allotting N147.3bn, following robust demand by market players.

The expanding bid range forced the Apex bank to allot the bills at a higher rate across the 91 Days To Maturity (DTM), 182DTM and 364DTM at 2.0% (previous 1.0%), 3.5% (previous 2.0%) and 5.5% (previous 4.0%) respectively.

The robust system liquidity for the week (average N378.1bn) and the dearth of alternative investible asset saw the bid-to-cover ratio settle at 1.5x. Also, at the OMO-bill PMA, the Apex bank sold bills worth N325.5bn at the same rates of 7.0%, 8.5%, and 10.1% across the short, medium, and long end of the curve, respectively.

The foreign exchange market traded exceedingly active last week as the Naira depreciated by N0.25 at the Investors and Exporter Window (I&E), closing at N410.25/USD from N410.00/USD in the prior week.

In terms of turnover, the FX market livened by +136.5% Week-on-week at the I&E window to an average of USD108.1mn from USD45.7mn at the prior session. Likewise, the Naira weakened by N4.00 in the Parallel Market against the Dollar to settle at N482.00/USD from N478.00/USD in the prior week.

The Bond market continues to be bid driven. “We witnessed investors cherry-pick oversold papers across the belly to the tail of the curve as they attempt to re-invest coupon inflows in the week. As a result, the average bond yield dipped 18bps to 9.2%, from 9.4% at the close of trading in the previous week.