THE Nigerian financial market recorded a bearish trend last week as system liquidity settled at ₦517.9 billion, reflecting a significant 211.0% week-on-week (w/w) increase. This surge in liquidity was primarily driven by aggressive borrowing by banks and discount houses at the Standing Lending Facility (SLF) window, amounting to ₦8,671.5 billion. Despite the liquidity improvement, market sentiment remained subdued, exerting pressure on key market segments and dampening investor confidence.
The rise in system liquidity had a direct impact on the interbank cost of funds. The Open Buy Back (OBR) and Overnight (OVN) rates climbed to 32.3 percent and 32.8 percent, respectively, up from 27.3 percent and 27.9 percent recorded in the preceding week.
This increase reflects tightening financial conditions despite the influx of funds into the system, highlighting the persistent challenges within the monetary framework.
In the Secondary Treasury Bills (T-bills) market, bearish sentiment prevailed as average yields across all tenors increased by 7 basis points (bps) w/w to 24.8 percent. Investor behavior revealed a shift in preferences, with a notable rotation out of long-term instruments in favor of shorter tenors. Yields on long-term instruments expanded significantly by 78bps to 27.2 percent, while short- and mid-term instruments experienced yield declines of 46bps and 12bps to 22.2 percent and 24.9 percent, respectively.
This performance indicates a cautious approach among market participants, who appear to be seeking safer, more liquid assets amid uncertainty. The preference for shorter-term instruments underscores concerns about interest rate volatility and macroeconomic risks, which continue to shape investment decisions.
The developments in the financial market last week underscore the broader implications of liquidity fluctuations on market dynamics and the economy. While the rise in system liquidity suggests some level of easing, the concurrent rise in interbank rates and the bearish performance in the T-bills market point to a complex interplay of factors, including monetary policy tightening and shifting investor sentiment.
As the market braces for the coming weeks, analysts expect continued volatility, with liquidity levels and macroeconomic indicators playing a pivotal role in shaping trends across financial markets. The focus remains on policymakers’ ability to manage liquidity effectively and foster stability in the face of global and domestic economic pressures.
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