Treasury Bills: Inflow Of N632bn To Crash Cost Of Funds

July 29, 2019

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Treasury Bills: Inflow Of N632bn To Crash Cost Of Funds

The scarcity of funds that caused cost of funds to rise by over 1000 basis points in the interbank money market last is expected to abate this week due to inflow of N632 billion from matured treasury bills and statutory allocation to states and local governments.

The interbank money market experienced sharp decline in liquidity last week, aggravated by outflow of N161 billion for foreign exchange purchases and FGN Bond auction held by the Debt Management Office (DMO).

This outflow cancelled out the impact of N120 billion inflow comprising N90 billion from matured treasury bills (TBs) and N30 billion from coupon payment on the 30-year FGN bond.

As a result, the market ended with negative liquidity of N90 billion, which caused average short term cost of funds to rise week-on-week by 1,025 basis points (bpts). Data from FMDQ showed that interest rate of Collateralised (Open Buy Back, OBB) lending rose by 993 bpts to 21.86 percent last week from 11.93 percent the previous week.

Similarly, interest rate on Overnight lending rose by 1,057 percent to 23.21 percent last week from 12.64 percent the previous week. Analysts were, however, hopeful that this trend will be reversed this week as the inflow of N6232.9 billion, comprising N311.9 billion from maturing TBs and N321 billion from statutory allocation, is expected to cancel out the effect of N223.23 billion outflow for TB purchase, and hence decline in cost of funds.

Making this projection, analysts at Cowry Assets Management Limited, said: “In the new week, CBN will auction T-bills worth N223.23 billion, viz: 91-day bills worth N28.02 billion, 182-day bills worth N58.68 billion and 364-day bills worth N136.52 billion. We expect their stop rates to decrease marginally due to increase demand amid boost in system liquidity which, in addition to maturing T-Bills worth N88.68 billion and the effect of Federation Accounts Allocation Committee (FAAC) inflows of N762.5 billion, are also expected to result in decline in Nigeria Interbank Offered Rate (NIBOR)”.