The overnight (OVN) rate leaped to 15.3% at the close of activities in the money market last week as the Central Bank of Nigeria (CBN) debited Nigerian banks for cash reserve ratio (CRR).
This was coupled with other factors such as the net treasury bill issuance of N45.36 billion and weekly foreign exchange auction by the apex bank that offset healthy system liquidity.
The overnight rate is generally the interest rate that large banks use to borrow and lend from one another in the overnight market. CRR debit overnight rate
Average net liquidity position last week stood at N412.08 billion for most of the week relative to N97.95 billion the previous week.
Based on this preceding, investment experts look forward to tighter liquidity in the system this week, as outflows for the November bond PMA, CBN’s weekly auctions may outweigh the sole inflow of N72.50 billion from OMO maturities. This has the propensity to drive the OVN northwards.
Treasury bills
In the week ended November 12, the Treasury bills secondary market ended on a bullish note as the healthy system liquidity, market participants’ filling unmet bids from Wednesday’s NTB PMA at the secondary market and lack of fresh supply at the OMO primary market, supported demand for T-bills.
Consequently, the average yield across all instruments declined by 31 basis points (bps) to 5.4%. Across the market segments, the average yield fell by 47bps and 15bps to 5.6% and 5.2% at the OMO and NTB segments, respectively.
Recall that at Wednesday’s NTB PMA, the CBN offered N150.82 billion worth of instruments for sale to market participants. Demand at this auction was solid, with the highest subscription level recorded this year at N574.88 billion, thus putting bid-offer ratio at 3.8x versus previous auction ratio of 2.9x.
Eventually, the CBN allotted N196.18 billion – N4.12 billion of the 91-day tenure, NGN3.00 billion of the 182-day tenure and N189.06 billion of the 364-day tenure bills with respective stop rates of 2.50% (unchanged), 3.50% (unchanged), and 6.50% from 6.99%.
“We expect yields to trend lower further next week, as investors sustain buying activities in reaction to the moderation in the stop rate of the one-year paper at the last primary market auction,” say analysts.
Bonds
Though with a slight bullish bias, mixed trading persisted in the Treasury bonds secondary market, as investors remained on the sidelines awaiting the NTB auction outcome for a clearer direction on fixed income yields.
Consequently, the average yield pared marginally by 1 basis point to 11.3%. Across the benchmark curve, the average yield declined at the short (-11bps) end following demand for the MAR-2025 (-96bps) bond.
Elsewhere, it expanded at the mid (+4bps) segment as investors sold off the FEB-2028 (+6bps) bond while the long end remained unchanged.
As a new trading week commences today, there are expectations that the outcome of the bond auction will shape market sentiments and the direction of yields.
At the auction, the Demt Management Office (DMO) will be offering instruments worth N150 billion through re-openings of the 12.50% FGN JAN 2026, 16.2499% FGN APR 2037 and 12.98% FGN MAR 2050 bonds.
Nonetheless, in the short-term, investment experts expect yields to hover around current levels, on the back of expected limited supply in Q4-21 and deliberate efforts by the DMO to reduce the government’s domestic borrowing cost.
CRR debit overnight rate
