Nigeria Overnight Rate Falls To 3-Month Low, Locals Buy Bonds

Nigeria’s overnight lending rates halved to three percent on Friday to a three-month low after the central bank injected liquidity into the banking system by paying off treasury bills, traders said.
A total of N197 billion ($989.9 million) in matured Open Market bills (OMO) was retired on Friday while the central bank did not issue fresh bills to mop up funds in a bid to keep borrowing costs low, traders said.
Traders expected another N300 billion ($1.5 billion) coming into the financial system after the central bank cut banks’ cash reserve ratio cut to 25 percent from 31 percent last week.
Liquidity had dried up on the interbank market two weeks ago after authorities ordered banks to move government deposits into a single account at the central bank, part of an anti-graft drive.
Some of the new funds were filtering into bonds.
“Treasury bill yields are lower than bonds at the short-end hence locals are piling into bonds,” said one trader at a Nigerian commercial bank.
Domestic pension fund managers have been buying short-term bonds at higher yields as foreign buyers left the market after JP Morgan moved to evict Nigeria from a key emerging markets index.
A central bank official said on Wednesday the banking system had enough liquidity to take up what foreign investors might sell after JP Morgan removed Nigeria from its bond index.
Banking system credit opened at N189 billion on Friday before the inflow hit the system, lifting the sector’s total cash balance with the central bank to N386 billion, traders said.
Yields on the benchmark 10-year bond, one of those to be delisted from the influential index, rose to 15.12 percent, from 14.74 percent last week. 
The most liquid 3-year bond traded at 14.76 percent while the one-year treasury bill was quoted at 13.84 percent on Friday.
The secured open buy back (OBB) — the rate at which lenders can borrow from the interbank market using treasury bills as collateral — fell to 3 percent on Friday, 10 percentage points below the central bank’s benchmark interest rate of 13 percent.

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