- Liquidity Tightens After NTB, OMO Settlements
- As Treasury Bills Demand Remains Robust
Funding conditions in the Nigerian financial system came under pressure during the week following the settlement of N1.20 trillion in Nigerian Treasury Bills (NTBs) and N2.19 trillion in Open Market Operations (OMO) auctions, which significantly drained liquidity from the banking system.
Consequently, system liquidity declined by 20.68% to N2.99 trillion from N3.78 trillion in the previous week.
Despite this moderation, liquidity remained firmly in surplus, underscoring the resilience of banking system funding even as the Central Bank of Nigeria (CBN) maintained its tight monetary policy stance aimed at containing inflation and managing excess liquidity.
Money market rates remained broadly stable despite the liquidity squeeze.
The Open Repo Rate (OPR) was unchanged at 22.00%, while the Overnight (OVN) rate edged up marginally by 2 basis points to 22.14%, indicating that short-term funding conditions remained relatively comfortable.
Across the Nigerian Interbank Offered Rate (NIBOR) curve, however, funding costs rose beyond the overnight tenor as the one-month, three-month, and six-month rates increased by 25bps, 45bps, and 58bps to 22.70%, 23.22%, and 23.67%, respectively, while the overnight NIBOR eased slightly by 3bps to 22.21%.
The upward repricing of medium- to long-term interbank rates reflects market expectations that the CBN will sustain its restrictive monetary policy stance following its decision to retain the Monetary Policy Rate (MPR) at 26.50%.
Meanwhile, the Nigerian Treasury Bills True Yield (NITTY) curve recorded broad-based declines across all maturities, with the one-month, three-month, six-month, and twelve-month tenors falling by 41bps, 8bps, 34bps, and 16bps, respectively, reflecting sustained investor demand for government securities in the secondary market.
Trading activity in the Treasury bills secondary market remained largely subdued, although mild buying interest compressed the average yield by 12bps to 18.23%.
At the primary market auction, the Debt Management Office (DMO) offered N700 billion across the standard NTB maturities, attracting overwhelming investor demand with subscriptions of N3.60 trillion—an oversubscription rate of more than 5.1x.
The DMO ultimately allotted N1.20 trillion, while stop rates for the 91-day and 182-day bills were maintained at 16.30% and 16.50%, respectively.
The 364-day stop rate, however, declined by 31bps to 17.35%, signalling stronger investor appetite for longer-dated short-term instruments.
Looking ahead, we expect liquidity conditions to receive support from N783.78 billion in maturing securities, comprising N500 billion in OMO bills and N283.78 billion in Treasury bills.
Nonetheless, the CBN is likely to conduct additional OMO auctions to sterilise excess liquidity and keep short-term interest rates within the current range.
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