Last week, the high liquidity levels from the preceding week continued to influence activities in the domestic financial markets. Activities at the OTC market for FGN bonds were relatively stable and low compared to the previous week as indicated by the relative volatility in prices across various maturities. We equally note the decline in interbank rates as a result of the high liquidity level in the system during the week. Also, we believe activities during the week indicated market adjustments to the monetary authorities’ decision to hold the policy rate at 12 percent and overall sentiments regarding profit-taking by foreign and institutional investors. On another note, the treasury bills market was inactive on the short and medium end as traders reposition to take advantage of the liquidity tightening in the system.
As highlighted earlier, we note the sustained liquidity tightening in the system as a result of the liquidity levels given that the market recorded the offering of c. N390.00 billion OMO bills at four auctions whilst c. N228.37 billion was sold at discount rates ranging between 14.50% and 15.00% with maturities between 38 days and 77 days. However, we observed the substantial increase in level of allotment on the offered OMO bills when compared with that of the preceding week (fig. 3). In our opinion, the increase in the level of the allotted amount could be as a result of the cut off rates which came out higher given the apex bank’s resolve to mop-up the excess liquidity in the system.
We believe the result of the OMO sales suggests that investors appear to be determined in taking maximum advantage of the high interest rate regime; hence, the submission of high rates.
In the non-sovereign bond market, the Federal Mortgage Bank of Nigeria (FMBN) has successfully raised N24.56 billion from the market. The bond which has a zero coupon feature was issued at a price of 62.15% and yield of 16.50% with a tenor of 3years. The bond is a 100 percent unconditional and irrevocable guarantee of the Federal Government of Nigeria. The note was issued to refinance the outstanding principal balance under the N26 Billion Series 1 Notes due 25th May 2012.
This week, we expect a Tbills auction at which N32.97 billion, N45.00 billion, and N60.00 billion of 91day, 182day and 364 day respectively will be offered, whilst Tbills and OMO bills worth N167.43 billion and N29.46 billion respectively, will mature. Consequently, we expect the CBN to sustain the liquidity tightening given the level of the system liquidity that will occur as a result of this week’s activities.
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