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By Chinwendu Obienyi
Despite the recovery in system liquidity to N518.9 billion in November, interbank rates (OPR and OVN) rose significantly, indicating tight monetary conditions driven by structural market factors and Central Bank activities.
According to Afrinvest Monthly Market report, liquidity shifted from a deficit of N207.6 billion in October 2024 to a surplus of N518.9 billion in November 2024.
The report stated that the the recovery was supported by inflows, notably: primary market repayment (N1.3 trillion), OMO repayment (N7.3 billion), and SLF (N8.3 trillion) which all outpaced outflows via OMO sales (N1.5 trillion), PMAs (N17 trillion), and SDF (N3.1 trillion). Nonetheless, OPR and OVN rose 8.1ppts and 8.5ppts m/m to 29.3% and 29.9% respectively. In the primary market, the Central Bank of Nigeria (CBN) offered an OMO (N300.0bn) and two NT-bills (gross: N1.1 trillion) auctions in November across the 91-, 182-, and 364-day notes.
However, investor interest was only seen at the long-end of the curve with a bid-to-offer ratio of 5.8x (offer: N250.0 billion Subscription/Sales: N1.5 trillion) while the short- and mid-dated instruments recorded no interest.
Nonetheless, the stop rate cleared at 24.3% – the same as the previous month. Meanwhile in the NT-bills auctions, instruments worth N1.1tn were offered cumulatively (Subscription: N1.9 trillion, Sales: N1.3 trillion).
At both auctions, the long-end of the curve saw the most interest (bid-to-offer ratio: 1.7x) while short- and mid-dated notes were less demanded with bid-to-offer ratios of 0.8x and 0.7x respectively. The auction cleared at higher stop rates of 18.0%, 18.5%, and 23.5% for the 91-day, 182-day, and 364-day bills, respectively, from 17.0%, 17.5%, and 19.9%.
Analysts at Afrinvest attributed the skewedness of investor interest to instruments with longer maturities to the current macroeconomic headwind, especially the unabating inflation.
In the secondary market, average yields expanded by 2.1ppts m/m to 26.2% supported by sell-pressure on the short and long-end of the curve with yield uptick of 4.3ppts and 3.1ppts m/m respectively to 26.2% and 27.1%.
However, buy interest was recorded in the belly of the curve with yield downtick of 1.1ppts to 25.4%. In December, system liquidity is anticipated to be drawn down as the CBN conducts FGN bond (N200.0 billion) and discretionary T-Bills auctions to mop up inflows from expected OMO and FGN bonds repayment worth N405.0 billion. Furthermore, the report added that investors’ sentiment is expected to be guided by the 25bps rate hike at November MPC meeting, thus, sustaining the negative momentum in the market.
