Interbank Rates and Bond Yields Fall

Nigeria's interbank lending rate and bond yields fell sharply on Wednesday after markets received a cash boost stemming from the central bank's reserve ratio cut and a fresh injection of government funds.

According to Reuters, traders in Lagos said interbank rates dropped to 6 percent after spiking as high as 50 percent, while bond yields slipped by around 20 basis points across the curve.

The central bank acted on Tuesday to ease the liquidity squeeze gripping Nigeria's financial system by cutting banks' cash reserve ratio to 25 percent, though it kept interest rates on hold at 13 percent.

The move followed authorities' decision last week to force commercial banks to transfer government revenue to a Treasury Single Account (TSA) at the central bank. Part of a drive to fight corruption, the transfer effectively brought the interbank market to a halt.

Traders said additional cash had also come in thanks to government transfers.

"Right now FAAC - budget allocation to states and local government - is being credited to the system and rates have crashed to the sub-10 percent level," one dealer said.

Interbank lending rates for overnight placement closed at an average of 6 percent - a 60 percent fall from the 15.5 percent quoted on Tuesday.

Banking sources and traders had earlier said overnight lending rates were quoted as high as 30-50 percent as markets waited for the liquidity measures to kick in.

Bond Yields Down
Naira bond yields also slipped, reflecting the improvement in banks' cash positions after the central bank move.

"It looks like liquidity is increasing again," said Kieran Curtis, a portfolio manager at Standard Life Investments in London.

"Bond yields had started coming down even before the CRR cuts and after the cuts, the first thing the banks did was put the money into bond markets."

The benchmark 2024 bond was quoted at 14.93 percent on Wednesday, down from 15.15 percent on Tuesday before the central bank's move. The 2020 paper was trading at 14.99 percent against 15.18 percent at Tuesday's close, while the longest tenor 2034 was quoted at 14.99 percent from 15.16 percent.