The Central Bank of Nigeria (CBN)’s rate hold and a sizeable cash surplus in the banking system lifted demand for government securities last week, as investors continued to deploy available liquidity into fixed-income assets amid easing yield pressures.
According to the latest market data the banking system liquidity closed the week at N3.78 trillion, indicating that banks were still sitting on a large pool of cash despite moderation from the previous week.
The level of liquidity was strong enough to keep short-term funding conditions comfortable and support active participation in the Treasury bills, OMO and bond markets.
Market activity was buoyed by persistent investor appetite across both the primary and secondary markets. With rates unchanged at the Monetary Policy Committee (MPC)’s recent meeting, participants in the market interpreted the policy stance as supportive of a stable, high-yield environment, encouraging continued buying in government securities.
System liquidity had opened the week with a net surplus of N3.20 trillion, lower than the N4.68 trillion recorded in the previous week, largely reflecting a decline in balances at the Central Bank of Nigeria’s (CBN) Standing Deposit Facility (SDF).
Liquidity was subsequently boosted by N1.50 trillion in Open Market Operations (OMO) bill maturities, which provided substantial inflows into the banking system.
However, funding conditions tightened midweek following a N929 billion debit for the settlement of the Federal Government of Nigeria (FGN) bond auction. Despite this liquidity withdrawal, elevated SDF balances helped cushion the impact, allowing system liquidity to close the week at a healthy N3.78 trillion, albeit below the previous week’s level.
The money market also reflected the liquidity surplus. The Open Repo Rate held at 22.00 per cent, while the Overnight Rate settled at 22.12 per cent, showing that funding conditions remained broadly stable.
According to experts at different research houses, the resilience in these rates suggested that banks had sufficient cash buffers to meet near-term obligations without excessive borrowing pressure.
They noted that the current environment continues to favour fixed income investors, particularly those looking for relatively safe returns in a high-interest-rate setting. “The combination of strong liquidity, attractive yields and a rate hold stance has kept demand robust, especially for Treasury bills and FGN bonds. That demand has, in turn, supported a downward move in yields as buyers outnumber sellers in several segments of the market”, they said.
They added that investors are expected to remain focused on liquidity flows, upcoming OMO maturities and the Central Bank’s possible sterilisation actions.