The development will portend a significant liquidity tightening in the money market signaling increase in interest rates amidst expected rise in yields in government securities.
The breakdown in the public sector funds flow published by FSDH Merchant Bank Economic Research shows that while total inflow of about N941bn will hit the money market from the various government maturing securities and Federation Account Allocation Committee, FAAC, in the month of July 2015, expected outflows from the various sources such as government securities and statutory withdrawals are estimated at N531 billion, leading to a net inflow of N410 billion.
Already, the financial system has recorded about N330.86 billion inflow so far in the first two weeks of the month while N124.5 billion, N159.9 billion and N102.7 billion are expected this week, next week and last week of this month respectively from maturing Federal Government obligations to the financial system.
The balance of about N223 billion is expected inflow from FAAC.
However, the funds flow does not include possible interventions by the Central Bank of Nigeria, CBN, at the inter-bank segment of the foreign exchange market as well as withdrawals by the Nigerian National Petroleum Corporation, NNPC, from the system which are difficult to estimate.
With this, FSDH said “the current Nigeria economic fundamentals points to the fact that the government securities market should expect an increase in yields in the longer dated Treasury Bills (TBs) and Federal Government of Nigeria Bonds (FGNBs), while the 91day and 182day TBs are expected to decline.”
The yields on fixed income securities are expected to be higher in the month of July 2015. The following factors, according to the research report, would drive yields on the fixed income securities in the next few months: the expectation of a further depreciation in the value of the Naira; the increase in the debt position of the Federal Government; low oil price and oil revenue and the expectation of an increase in inflation rate.
Analysis of the liquidity situation in the money market and the fixed income securities market in the month of June 2015 shows that there was a net inflow of about N338 billion from various sources, compared with a net outflow of about N580billion in the month of May 2015.
The major outflows in the month of June 2015 were the Open Market Operations (OMO) of about N517billion, the Primary TBs of about N250billion, and the bond auction of about N80billion.