Money Market Review and Outlook

As a result of the Easter holidays, the market only traded on the first 4 days of the week and as such the fixed income review will only be from Monday till Thursday. Who’s excited for Easter eggs? Hands up!

The week opened with system liquidity hovering at the same levels from the end of last week on the back of no significant inflows or outflows; Open Buy Back (OBB) and Overnight (ON) rates dropped 0.5% a piece on Monday to close at 4.3% and 4.8% respectively as investors animatedly awaited the resolutions from the MPC meeting. On Tuesday, the CBN refunded the Deposit Money Banks for unfulfilled bids at last week’s FX intervention auction but its impact on liquidity levels was offset by the DMBs simultaneously provisioning for this week’s FX auction, consequently, OBB and ON rates remained at the same rates from Monday.

At the end of the MPC meeting on Tuesday, the CBN Governor announced the committee’s decision to increase MPR by 100bps and Standing Deposits and Lending rates to 7.0% and 14.0% respectively. On Wednesday, there was a T-bills auction worth N115.0bn, where the 91days, 182days and 364days tenor bills were issued at stop rates of 6.0%, 8.6% and 9.6% respectively. On the back of reduced liquidity levels as a result of the auction, coupled with the MPC’s announcement on Tuesday, OBB rose 2.4% whilst ON rose 2.5% on Wednesday to settle at 6.6% and 7.3% respectively. OBB and ON rates continued to rise on Thursday to close at 12.8% and 13.3%, up 7.5% apiece WTD. NIBOR average climbed 3.6% WTD to 12.2%.

The T-bills market was mixed this week but largely bearish as average yields trended in similar fashion to interbank money market rates. Similar to OBB and ON rates, average T-bills rates declined 0.3% from the previous trading session on Monday to close at 6.6% as market lowered expectation of a policy rate hike. However, the market pared gains on Tuesday as average T-bills rates inched 0.3% higher to close at 6.9% with more bearish trading activities witnessed at the short end of the curve. As a result of the MPC’s decision to increase MPR by 100bps on Tuesday and a T-bills auction, rates rose across tenors (save for the 12M maturity) by 0.4% on average to close at 7.3%. The result of the T-bills auction which showed stop rates rose significantly higher than prevailing market rates drove further bearish sentiment on Thursday as average T-bills rates continued its northwards movement to close at 7.7% up 0.8% WTD.

We believe the interbank market has significantly adjusted for the MPC rate hike and barring any unexpected OMO mop-up from the system, we expect rates to continue to stay at current levels at market close next week. However, we expect rates to fluctuate to liquidity dynamics during the week as deposit money banks provision and get refunded for FX intervention.