The overnight inter-bank rate, which is the rate at which Deposit Money Banks (DMBs) borrow and lend to each other, rose to as high as 47.5 percent on Monday from 19.42 percent on Friday last week.
Also, the Open Buy-Back (OBB), the money market instrument used to raise short term capital, increased from 18.67 percent on Friday last week to 43.33 percent on Monday.
The development was as a result of financial liquidity strain according to analysts at Cowry Asset Management Limited.
The Central Bank of Nigeria (CBN) has continued to mop up liquidity in the system through Open Market Operation (OMO) instrument to curb inflation and maintain stability in the foreign exchange market.
On Monday, the CBN moped up a total of N78.3 billion from the banking system through OMO auction, which were all fully subscribed by investors.
A breakdown of the OMO result on Monday shows that N39.9 billion was offered for 119 days tenor to mature in June 19, 2019 at the rate of 11.9 percent. This was fully subscribed by N39.9 billion by investors.
The CBN offered N34.9 billion on Monday for 360 days tenor at the rate of 15 percent. The offer, which would mature on February 6, 2020 was bided at the range of 15 percent and was fully subscribed by N34.9 billion.
For a short-term tenure of 94 days, a total of N2.4 billion was offered at the bid range and sale rate of 11.9 percent. The OMO security billed to mature by May 16, 2019 was also fully subscribed.
In the same way, a total of N1.1 billion was offered by the CBN for 178 days tenor, which is expected to mature on August 8, 2019. It was bided and sold at the rate of 13. Percent and was fully subscribed.
“We have seen increased interest in short term OMO maturity due to the lower rates in the secondary market”, said Ayodeji Ebo, managing director, Afrinvest Securities Limited.
The situation before, Ebo said was that rates were higher in the secondary market, hence investors looked away from the short term OMO maturities. However, the interests for long term OMO bills have been sustained due to higher rates than the secondary market.
However, a total inflow of about N2.33 trillion is expected to hit the money market from the various maturing government securities and Federation Accounts Allocation Committee (FAAC) in February 2019, according to FSDH Research.
“We estimate a total outflow of approximately N644 billion from the various sources, leading to a net inflow of about N1.68 trillion”, Ayodele Akinwunmi, head of research, FSDH Merchant Bank Limited, said.
FSDH Research expects the market to remain relatively liquid in February 2019. This may continue to necessitate the issuance of OMO to mop-up the liquidity in the system.
The analysts expect yields in the bond market to increase above the current level. Consequently, investors with large bond portfolios may take profit and buy back later when yields increase, while those with small portfolios should take advantage of the current yields and buy gradually.
Traders in the Treasury Bill market may adopt a strategy that will allow them to shift from one tenor to another in order to take advantage of movements in yields as investors are expected stay in short-tenored fixed deposits. This will enable them to switch as market opportunities arise.