The market is set to contrast ahead of expected October fund inflow into the system.
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The Central Bank of Nigeria (CBN) has already taken a pre-emptive step when it sold treasury bills worth N132.05 billion last week, even as additional N65 billion will flow out of the system through the 10 years bond sale this week.
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Evidence of liquidity surfeit was seen in the inter-bank market where the Nigerian Inter-Bank Offer Rate (NIBOR) slowed noticeably last week.
The central bank sold N132.05 billion in short-dated treasury bills at an auction last week Thursday, with yields dropping marginally against the trend in the last two consecutive auctions.
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The central bank sold N39.27 billion of 91-day treasury bills at 15 per cent, down from a 15.29 per cent marginal rate at the last auction, and N45 billion in 182-day paper at 16.20 per cent, against 16.29 per cent last week.
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It sold N37.78 billion in 364-day bills at 16.34 per cent, compared with 16.49 per cent last week.
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Nigeria hiked its benchmark interest rate by 2.75 per cent to 12 per cent and implemented a series of measures to free up dollar supply and tighten naira liquidity last month, causing a rapid increase in yields on fixed income instruments across the board.
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Traders said the market is gradually adjusting to reality after the initial shock by higher-than expected rate hike.
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Yields on long-dated bonds on the secondary market were generally lower last week compared to the previous? week, while cost of borrowing among banks eased, owing to increased liquidity in the system from budget disbursal the week before.
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Treasury bills are regularly sold by the apex bank as part of monetary control measures to help lenders manage liquidity.
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Total subscription stood at N241.42 billion, compared with N236.57 billion at the previous auction, while a total of about N127.06 billion in treasury bills matured this week, leaving a net outflow of 4.99 billion into bills.
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In addition the Debt Management Office (DMO) plans to sell N65 billion of 10-year bonds on November 16, its eleventh debt auction this year, while cash inflow to foreign exchange purchases at the bi-weekly auction is expected to further reduce liquidity in the system.
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“We do not anticipate rapid increase in cost of borrowing next week despite the possible inflows to bonds, treasury bills and foreign exchange purchases,” another dealer told Reuters, adding that October budget inflow is around the corner.
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Another analyst said the move by the CBN may not be unconnected with the recent fall in inter-bank lending. Interbank lending rates eased further this week to an average of 13 per cent, from 14.83 per cent the previous week, owing to surplus liquidity from a budgetary disbursal last week and low cash outflows because of a two-day public holiday.
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Traders said the market opened on last Friday with a cash balance of N214 billion, while additional inflows from lenders’ cash reserves requirements on Thursday further boosted liquidity to keep rates low.
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The secured Open Buy Back (OBB) fell to 12.50 per cent from 14 per cent last week, 50 basis points above the central bank’s 12 per cent benchmark rate and 250 basis points above the Standing Deposit Facility (SDF) rate.
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Overnight placement fell to 13 per cent from 15 per cent, while call money dropped to 13.50 per cent, against 15.50 per cent previously.
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“The market remained liquid from leftover cash from budget disbursal last week, while there were not many transactions in the market to drain cash from the system this week because of the public holiday,” one dealer said.
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Expectedly, indicative rates for the Nigerian interbank offered rate (NIBOR) closed lower to reflect prevailing liquidity in the market, with the seven day funds dropping to 14.20 per cent, from 17 per cent last week.
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Thirty-day funds fell to 15.16 per cent from 17.41 per cent, the 60-day eased to 15.62 per cent against 17.75 per cent, while the 90-day dropped to 15.95 per cent from 18.04 per cent.?