OVN Rate Contracts 108bps To 2.3%
With the liquidity squeeze on the back of the low economy due to Covid-19 and oil prices plunge, experts see demand for T-bills to worsen this week especially with the low coupon rates
The overnight lending rate contracted on Monday by 108bps to 2.3 per cent, in the absence of significant outflows from the system.
Trading in the NTB secondary market was bearish, as average yield expanded by 16bps to 2.4 per cent. Across the curve, yields expanded at the mid-segment by 23bps and long segment by +19bps, following sell-offs of the 164DTM which expanded 36bps and 178DTM instrument which garnered 42bps instruments, respectively. The short end was flat. Elsewhere, average yield contracted by 15bps to 8.3 per cent in the OMO secondary market.
However, trading in the Treasury bond secondary market was bullish, as average yield contracted by 2bps to 10.6 per cent. Across the curve, yields at the short by -2bps, mid-segment by -4bps and long segment by -1bp, contracted following demand for the JUL-2021 which weekend by 6bps, APR-2029 by -5bps and MAR-2036 bond by -10bps, respectively.
Meanwhile, the N17.87 billion FGN bond maturity coupon expected to be settled by this week is seen as not large enough to sustain the large system liquidity required to maintain the Overnight (OVN) rate at a minimised rate that closed the last week’s session.
This is even as expected tight liquidity this week, is billed to worsen Treasury Bills demand this week, as offers may be undersubscribed.
Experts’ project that the OVN is likely to expand this week, as the projected week’s inflow from FGN bond coupon payments 17.87 billion may not be sufficient to improve liquidity in the system.
Meanwhile, the overnight (OVN) rate contracted last week by 491bps, w/w, to 3.4 per cent. The OVN started the week higher at 9.6 per cent from the preceding week’s close of 8.3 per cent, following the strained liquidity in the system.
However, inflows of N209.05 billion from OMO maturities outweighed N142.76 billion outflow from NTB auction debits, thereby leading to the eventual contraction in the OVN as the weekends.
In the new week, experts see demand for T-bills to worsen, as system liquidity may become tight this week.
Trading in the treasury bills secondary market was bullish last week, following improved demand from local participants and Foreign Portfolio Investors (FPIs) awaiting US dollar supply from the CBN and trading activity in the NTB secondary market, following the week’s PMA.
Thus, the average yield across all instruments contracted by 126bps to 6.6 per cent. Across the segments, average yields contracted at the OMO and NTB markets by 163bps and 38bps to 8.5% and 2.3 per cent, respectively.
At the week’s NTB PMA, the DMO took advantage of the high subscription levels, as it fully allotted NGN142.76 billion worth of bills – NGN19.78 billion of the 91-day, NGN40.09 billion of the 182-day and NGN82.89 billion of the 364-day – at respective stop rates of 2.50 per cent (previously 1.85%), 2.85 per cent (previously 2.50%), and 3.84 per cent (previously 3.84%).
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