The Business NG - July 08, 2024

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Nigeria's financial markets experienced significant volatility this week, driven by liquidity pressure and monetary policy developments. The overnight rate surged by 753bps to 32.5%, while the average yield on Treasury bills advanced by 83bps to 23.4%. The FGN bonds market was mixed, with the average yield expanding by 2bps to 18.8%.

The naira depreciated by 0.3% to NGN1,509.67/USD, despite a 13-month high in FX reserves. The forwards market also saw declines in the naira rates across all contracts.

Analysts attribute the market volatility to liquidity pressure, driven by last Friday's late OMO auction and Tuesday's CRR maintenance debits. They expect the system liquidity to remain subdued next week, with possible net issuance at the NTB auction exerting more pressure on liquidity levels.

The sustained dearth in system liquidity is expected to undermine demand for instruments in the T-bills secondary market, causing yields to expand further. However, pockets of demand may emerge for attractive maturities, given the reduced supply indicated in the recently published Q3-24 bond issuance calendar.
For the rest of the year, analysts maintain their medium-term expectation of elevated yields due to anticipated monetary policy administration globally and domestically, as well as sustained imbalance in demand and supply dynamics.