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Markets Watch: Overnight rate expands by 800bps w/w to 20.5% after CBN’s debits for CRR, T-bills average yield rises by 3bps to 8.4%

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SAT 10 JULY, 2021-theGBJournal- The overnight rate expanded by 800bps w/w to 20.5% as debits for CRR and CBN’s weekly auctions (FX and OMO: NGN17.00 billion) auction outweighed inflows from OMO maturities (NGN20.00 billion).

Next week, we expect improved system liquidity and, by extension, moderation in the OVN rate, as inflows from the maturing JUL-2021 bond (NGN561.05 billion), FGN bond coupon payments (NGN40.68 billion) and OMO maturities (NGN10.00 billion) outweigh funding requirements.

Meanwhile, the Treasury bills secondary market closed on a bearish note, as liquidity conditions deteriorate as the week progressed.

Consequently, the average yield across all instruments expanded by 3bps to 8.4%. Across the market segments, the average yield at the NTB segment expanded by 4bps to 6.6%.  Elsewhere, the average yield at the OMO segment contracted by 5bps to 9.9% given improved demand in the secondary market following the CBN’s two-week hiatus from the primary market.

We highlight that the CBN returned to the market this week, and sold NGN17.00 billion worth of OMO bills to market participants and maintained the stop rates across the three tenors, as with prior auctions.

In the coming week, we expect the average yield on T-bills to decline as we envisage improved system liquidity. Also, we expect quiet trading at the NTB market as participants position for next week’s PMA, with the CBN set to roll over NGN109.43 billion worth of maturities.

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