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Interbank rates to rise on FGN bond auction

Financial system liquidity may drop under pressure, resulting to increase in interbank lending rates following anticipated bond auction this week, according to analysts in the asset management sub sector.

The Debt Management Office (DMO) will issue Federal Government bonds worth N110 billion, including 5-year tenor, at 14.50 percent FGN JUL 2021 debt worth N40 billion; 10-year, at 12.50 percent FGN JAN 2026 bond worth N30 billion, and 20-year, 12.40 percent FGN MAR 2036 paper worth N40 billion.

“We expect stop rates to mirror last primary market auction rates in line with CBN’s drive to keep rates high as incentive to attract Foreign Portfolio Investors,” analysts at Cowry Asset Management Limited, said.

At the foreign exchange market, naira is expected to trade strong this week as speculation reduces following renewed efforts by Bureau De Change (BDC) operators to purchase dollar from banks as directed by the CBN.

Last week, the Nigerian FX market witnessed sustained depreciation of the naira against the dollar in all segments, as foreign currency supply remained inadequate. This was against the backdrop of a 0.51 percent week-on-week decline in FX reserves to $25.90 billion, as ofWednesday.

Despite a total trade of $13.13 million at the interbank market segment largely attributable to the CBN’s intervention on Tuesday andThursday, the local currency depreciated at the interbank FX market by 0.34 percent to average N319.5/$.

Similarly, despite sales by authorised dealers to BDC operators, the naira depreciated, on average, against the greenback at the BDC and the parallel market segments by 1.70 percent and 1.67 percent to average N387.75/$ and N394.75/$, respectively.

Nigerian interbank money market last week moderated following the maturity of 192-day treasury bills worth N415.51 billion – 92.66 percent higher than the N113.68 billion that matured in the preceding week. Consequently, NIBOR for overnight funds, 1 month, 3 months, 6 months and 12 months tenor buckets mellowed to 19.33 percent (from 20.04%), 17.07 percent (from 17.24%), 18.82 percent (from 19.27%) and 20.33 percent (from 21.65%), respectively.

In the same vein, against the backdrop of boost in financial system liquidity, Nigerian Interbank Treasury Bills True Yields (NITTY) decreased for most maturities on the back of bargain hunting activity – yield on 1 month, 3-months, 6-months rose to 14.90% (from 15.82%), 15.52% (from 17.07%) and 17.18% (from 19.12%), respectively.

Last week, FGN bond market witnessed sustained bargain hunting, resulting in appreciation in bond prices for all maturities. The 20-year, 10% FGN JUL 2030 bond appreciated by N0.61 (yield decreased to 15.23%); 10-year, 16.39% FGN JAN 2022 paper gained N1.49 (yield fell to 14.81%); the 7-year, 16% FGN JUN 2019 bond gained N1.15 (yield decreased to 14.93%); while the 5-year, 15.10% FGN APR 2017 paper rose by N0.42 (yield declined to 19.52%).

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