Overnight Rate to Decline as N1.352tn FGN Bond, Coupon Payments, FAAC Hit Economy this Week

Festus Akanbi

Barring any unforeseen circumstance, a total of N1.352trillion is expected this week from the maturing April 2023 bond, Federal Government Bond coupon payments, and the April edition of the Federal Account Allocation (FAAC) disbursements.

Financial analysts said the development would lead to increased liquidity in the banking system and a decline in the overnight rate.
The breakdown of the payment showed that N735.96 billion is expected from the maturing April 2023 bond; N178.50 billion from the FGN bond coupon payments and N438.49billion will come from the FAAC disbursements for April.

The overnight rate, which is usually announced once a month, is the amount paid to the bank lending the funds.
According to a report by Cordros Securities in its Weekly Economic and Market Update released at the weekend, the anticipated financial glut will rub positively on the nation’s financial system, which is expected to experience lower yields in the treasury bills’ secondary market.

The report stated: “Next week, we envisage lower yields in the Treasury bills secondary market as we believe the liquidity surfeit in the financial system will drive demand. In addition, we expect market focus to be shifted to the NTB PMA holding on Wednesday (26 April), where the CBN is scheduled to roll over NGN131.46 billion worth of maturities.

“Next week, we expect the liquidity influx from the maturing APR-2023 bond along with coupon payments will support demand in the FGN bond secondary market and drive yields downwards in the interim. Over the medium term, we expect an uptick in bond yields as we believe investors will demand higher yields, which will be driven by significant borrowings expected from the FG for the year.”

The report pointed out that in the preceding week, the overnight (OVN) rate remained elevated at 19 per cent, as the liquidity in the system remained low.
“For clarity, debits for the FGN bond auction (N552.47 billion) overshadowed the inflow from FGN bond coupon payments (N46.44 billion). As a result, the average system liquidity closed at a net short position of N338.33 billion (vs. a net short position of N176.33 billion in the previous week).
In addition, analysts also foresee a positive threshold of performance in the capital market which is expected to take delivery of results of the quarter-one performances of some quoted companies.

The Cordros Securities report stated, “In the coming week, we expect the NGX’s floor to be flooded with results as the Q1-23 earnings season commences in full swing. Thus, we expect decent earnings releases across the board to temper selling activities and support positive sentiments on the bourse. In the medium term, we expect investors’ sentiments to be influenced by developments in the macroeconomic landscape and the movement of yields in the fixed-income space. Overall, we reiterate the need for positioning in only fundamentally sound stocks as the weak macro environment remains a significant headwind for corporate earnings.”