The money market closed last week on a buoyant note as inflows from the Federation Accounts Allocation Committee (FAAC) and Open Market Operation (OMO) maturities lifted system liquidity to over N1 trillion.
However, while interbank rates eased due to the cash injection, treasury bill yields jumped sharply as investors repositioned for higher returns.
Figures from the market showed that the system was bolstered by N2 trillion in FAAC disbursements and N350 billion from OMO maturities. This eased funding pressures and pulled interbank rates lower across the curve.
The Overnight Nigerian Interbank Offered Rate (NIBOR) dipped by 197 basis points week-on-week to 26.78 per cent, while the one-month, three-month, and six-month benchmarks dropped by 178bps, 184bps, and 182bps to 27.39 per cent, 28.16 per cent, and 28.78 per cent, respectively.
The liquidity inflow also impacted benchmark policy rates, with the Open Repo (OPR) and Overnight lending rates sliding by 240bps and 220bps to close at 26.50 per cent and 26.95 per cent. Despite the softer interbank rates, activity in the secondary market reflected investors’ appetite for higher yields.
The Nigerian Treasury Bill Yield (NITTY) curve firmed across most short—to mid-term tenors, with the one-month benchmark climbing 24bps to 16.37 per cent, while the three-month and six-month benchmarks gained 95bps and 8bps to settle at 17.68 per cent and 18.45 per cent, respectively. The 12-month maturity, however, slipped 31bps to 20.43 per cent, suggesting investors shifted focus towards shorter-dated instruments.
In the treasury bills market, selling pressure dominated the curve, pushing average yields higher by 704bps week-on-week to close at 25.49 per cent. Analysts at Cowry Asset Management noted that while the FAAC-driven liquidity eased funding pressures in the near term, the Central Bank of Nigeria (CBN) is expected to resume aggressive liquidity mop-up through auctions and the standing deposit facility window in the coming week.
“Although a total of N324.41 billion in treasury bill maturities is expected to provide fresh liquidity, the apex bank has already lined up N480 billion worth of fresh supply across the 91-day, 182-day, and 364-day tenors, which may sustain upward pressure on yields,” they added.
Meanwhile, data from the FAAC meeting showed that allocations to the three tiers of government rose by 10 per cent month-on-month to N2 trillion in August, up from N1.82 trillion in July. The increase was buoyed by stronger receipts from Petroleum Profit Tax (PPT), Excise Duty, Electronic Money Transfer Levy (EMTL), oil and gas royalties, Value Added Tax (VAT), and Import Duty, which offset declines in Company Income Tax (CIT) and Customs External Tariff (CET) levies.
Breakdown of the distribution showed that the federal government received N735.08 billion, States got N660.35 billion, while Local Governments received N485.04 billion. Oil-producing states received an additional N120.36 billion as derivation, representing 13 per cent of mineral revenue.
Analysts at Cordros Research said, the higher disbursements should provide temporary fiscal relief for the federal, state and local governments. They, however, cautioned that the outlook for FAAC inflows remains uncertain due to volatile oil receipts and structural weaknesses in Nigeria’s fiscal framework.
“While improved oil production and stronger corporate earnings may support revenue, weaker oil prices and a relatively stable exchange rate could limit FX-related windfalls. This suggests monthly FAAC payouts will remain vulnerable to external shocks,” they noted.
