TSA: Bonds yields fall as interbank rates rise

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CBN GovYields on Nigerian bonds declined on Wednesday after the Central Bank of Nigeria slashed its cash reserve ratio by six percentage points to boost liquidity in the banking system but interest rates remained high at the interbank market, traders said.

“We have seen yields dropping this morning in response to the expected increase in liquidity,” one dealer said.

The CBN kept its benchmark interest rate on hold at 13 per cent on Tuesday but loosened monetary policy by cutting banks’ cash reserve ratio to 25 per cent to ease liquidity shortages, Reuters reported.

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The central bank had acted to ease liquidity shortages after the Federal Government forced banks to move government revenue to a Treasury Single Account at the CBN, part of a drive to fight corruption.

Yields on Nigerian debt, which had risen to 17 per cent after JP Morgan said two weeks ago it would to remove Nigerian bonds from a key emerging markets index by October, slipped below 15 per cent.

The benchmark 2024 bond was quoted at 14.93 per cent on Wednesday, down from 15.15 per cent on Tuesday before the central bank’s move.

The 2020 paper was trading at 14.99 per cent against 15.18 percent closed on Tuesday, while the longest tenor 2034 was quoted at 14.99 per cent from 15.16 per cent.

But at the same time overnight lending rates were quoted at between 30-50 per cent from 15.5 per cent the previous day, banking sources and traders said.

Traders said there was a liquidity deficit of about N110bn on Wednesday but banks were holding off deals until an expected injection of cash when the new CRR would show its effect.

“No one is borrowing at such a high rate for now, most fund takers are quoting between 8-9 percent for overnight because of the expectation of an increase in liquidity,” another dealer said.

Some analysts have put the amount sucked out of the banking system at around N1.2tn or 10 per cent of deposits but the Chief Executive Officer of Financial Derivatives Limited, Mr. Bismarck Rewane, said outflows were in the range of N250bn.

CBN Governor, Mr. Godwin Emefiele, declined on Tuesday to specify the amount transferred, saying only people should not believe estimates quoted in newspapers. Agency report