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FAAC, Bonds Coupon Inflow To Boost Liquidity

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Liquidity is expected to be on the upside at the financial market and rates on single digit this week on inflow of funds totaling N405.6 billion from Federal Accounts Allocation Committee (FAAC) and bond coupon payments is expected to hit the system.

Although analysts say they expect the Central Bank of Nigeria (CBN) to mop up the excess liquidity through money market instruments, the mop up may not be enough to douse the expected buoyant liquidity.

The CBN is expected to mop N150.6 billion from the market through Treasury Bills issuance raising N22.73 billion of the 91-day, N24.80 billion of the 182-day, and N103.07 billion of the 364-day bills from the market.

Last week, activities in the treasury bills market were bearish, following renewed selloffs from foreign investors amidst concerns about the impact of sustained oil price decline on the economy. As a result, yields rose 7 bps on average week on week, to close at 14.06 per cent.

Sell pressure was concentrated at the short (+4) end of the curve, with the yield on the 20DTM (+9 bps) expanding. Conversely, demand for the 97DTM (-59 bps) and 237DTM (-79 bps) bill led to respective yield contractions at the mid (-10 bps) and long (-1 bp) segments.

Liquidity levels remained robust following an OMO maturity worth N409 billion that hit the system last week and the apex bank sought to keep liquidity levels in check by floating an OMO auction worth N450 billion of which only N199.6 billion was mopped up.

At the auction, N50 billion of the 105-day paper was offered and there was a sale of N0.01 billion while the 182-day which had N150 on offer recorded a sale of N16.4billion and 350-day which had an offer of N250 billion recorded a  sale of N183.1 billion. The instruments were issued at marginal rates of 11.5, 13 and 14.5 per cents respectively.

Despite the robust liquidity levels, all the instruments were undersubscribed, given expectations of higher short-term rates by investors. Hence, there was increased buying activity in the secondary market.

Accordingly, money market rates moved in line with system liquidity dynamics. The Open Buy Back (OBB) and Overnight (OVN) rates opened the week at 10.2 and 10.8 per cents respectively, higher than 6.3 and 7.2 per cents at the close of the prior week). However, as liquidity levels improved through the week, rates trended lower to 5.8 per cent (OBB) and 6.7 per cent (OVN), down 0.5 per  and 0.6 per cent W-o-W respectively.





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