FAAC, OMO, bond payments to boost market liquidity

Nigeria Treasury Bills and (NTB) Auction Results Half-year 2023

Following expected inflows from Federation Account Allocated Committee’s (FAAC) disbursements, N157.27 billion OMO maturities and N49.89 billion from bond coupon payments, analysts have predicted improved financial system liquidity  this week.     

According to analysts at Cordros Capital, these inflows should limit the impact of outflows for CBN’s primary market and foreign exchange (forex) auctions.

Due to the strong outflow recorded last week, pressures mounted at the money market space as open buyback and the overnight lending rate increased. The overnight rate expanded by 658 basis points as against the previous week.

The liquidity squeeze was driven by Cash Reserves Ratio (CRR) debits on banks for failing to meet the Central Bank’s 65 per cent Loan- to-Deposit Ratio (LDR). In addition, the Federal Government bond auction worth N260.09 billion outweighed N89 billion inflows from open market operations (OMO) maturities.

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Amidst quiet trading sessions in the fixed income market, bullish sentiments persisted in Treasury bills secondary market following sustained demand for OMO instruments, which analysts attributed to the absence of renewed primary market supply by the CBN.

Thus, the average yield across all instruments contracted by 88 basis points to close the week at 5.4 per cent. Across the market segments, analysts report shows that the average yield at the OMO segment declined by 171 basis points to 6.0 per cent.

Similarly, the average yield at the Nigerian Treasury Bill segment pared by two basis points to 4.7 per cent on Friday following a series of seesaw outturns during the week.

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In the first few trading days, Cordros Capital analysts are expecting quiet trading as the CBN is set to roll over N157.20 billion worth of maturities to market participants at its bi-weekly primary market auction.

Afterwards, analysts said they envisage the trend of lower yields on T-bills to continue as market participants take positions due to expectations of further decline in auction stop rates amidst the CBN’s continued absence from the OMO primary market.

Following a weak market performance, trading in the bonds secondary market also closed the week on a bullish note as investors sought to fill lost bids from Wednesday’s bond auction, according to analysts.

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Specifically, the average yield declined by 17 basis points to 11.4 per cent. Cordros said across the benchmark curve, the average yield declined at the short (-5bps), mid (-41bps) and long (-7bps) ends following demand for the MAR-2024 (-39bps), MAR-2027 (-77bps) and MAR-2036 (-21bps) bonds, respectively.

At the bond auction, the DMO offered instruments worth N150 billion to investors through re-openings of the 13.9800 per cent FGN FEB 2028.  As expected, demand was higher as investors demand more than twice the offer (bid-to-offer: 2.4x). The DMO eventually over-allotted instruments worth N260.09 billion, resulting in a bid-to-cover ratio of 1.4x.


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