Nigeria’s banking system is expected to receive N2.858 trillion in fresh funds this week, mainly from maturing Open Market Operations (OMO) bills, Treasury bills and other financial market repayments. The inflows could increase the amount of money available to banks and other financial institutions, although government borrowing and central bank operations may absorb part of the funds.
According to the Financial Markets Dealers Association (FMDA) weekly market report, maturing OMO bills are expected to account for the largest share of the projected inflows at N2.067 trillion. Treasury bills repayments are expected to contribute N392.792 billion, while coupons on Federal Government of Nigeria bonds will provide another N349.838 billion.
Other expected payments include N42.872 billion from commercial paper maturities and N5.25 billion from corporate bond coupons. The report also identified a possible N2.43 trillion disbursement by the Federation Account Allocation Committee (FAAC) to the federal, state and local governments as an additional source of funds entering the financial system.
However, the expected liquidity increase could be moderated by government borrowing. The Debt Management Office (DMO) scheduled a N1.75 trillion Federal Government bond auction for October 19, involving the reopening of bonds maturing in February 2034, September 2036 and June 2038. The anticipated inflows follow a sharp increase in banking system liquidity during the previous week. FMDA reported that available funds rose by 69.39 per cent to N6.283 trillion from N3.709 trillion.
Maturing OMO bills contributed N2.409 trillion to the increase, while Treasury bills repayments added N80.84 billion. Other primary market repayments provided another N30.20 billion. However, the DMO’s sale of N269.06 billion in Treasury bills absorbed some of the available funds. The association explained the development, stating: “System liquidity rose 69.39% w/w to N6.283trn from N3.709trn, driven largely by N2.41trn of OMO maturities (with no offsetting OMO sale last week, only repayments), alongside N80.84bn of T-bill maturities and a further N30.20bn of other primary-market repayments, even as the DMO’s N269.06bn T-bill sale partially offset the inflows.”
Nigeria’s external position also recorded a slight improvement during the period. Gross external reserves increased by 0.02 per cent week on week to $55.089 billion, the highest level recorded since December 2008, according to the report. Average Brent crude prices rose by 3.92 per cent to $106.02 per barrel, providing a favourable development for the country’s oil dependent economy.
In the foreign exchange market, the naira weakened slightly against the dollar, depreciating by 0.06 per cent to N1,332.31 per dollar at the Nigerian Foreign Exchange Market. The parallel market rate remained unchanged at N1,375 per dollar. Trading activity in the official interbank foreign exchange market also increased, with turnover rising by 14.08 per cent to $1.08 billion.
Despite the rise in available funds, yields on government securities continued to increase. Average Federal Government bond yields climbed by 32 basis points to 16.43 per cent from 16.11 per cent in the previous week. The two year bond yield recorded the sharpest increase among the reported maturities, rising by 142 basis points to 17.50 per cent. The seven year yield increased by 61 basis points to 17.04 per cent, while the 10 year yield rose by 46 basis points to 17.05 per cent. In contrast, the 30 year bond yield fell by 60 basis points to 14.60 per cent.
FMDA stated: “FGN bond yields climbed further, up 32bps on average to 16.43 per cent, led by the 2-year (+142bps) and 7-year (+61bps), while the 30-year (-60bps) was the only tenor to rally.”
Treasury bills yields also increased, with the average yield rising by seven basis points to 18.23 per cent. However, the six month and 12 month yields declined to 17.70 per cent and 18.38 per cent, respectively. At its October 14 auction, the DMO allotted N269.06 billion against an offer of N450 billion, reduced from N900 billion previously. The 364 day Treasury bill rate increased by five basis points to 15.90 per cent, its first rise since August.
The report described the shift as “a pause in the post-MPR rate-cutting momentum.”
