The naira weakened against the United States dollar at the official foreign exchange market on Thursday, while liquidity conditions in the banking system tightened, pushing the overnight lending rate higher.
The official exchange rate depreciated by 0.4 per cent to N1,357.34 per dollar, reflecting renewed pressure on the domestic currency during the trading session.
In the money market, the overnight lending rate rose by seven basis points to 20.3 per cent, as the absence of significant liquidity inflows left financial institutions with tighter access to short-term funds.
The increase in the overnight rate points to sustained pressure in the interbank money market, where liquidity conditions continue to influence the cost of short-term borrowing among banks.
However, activity in the fixed-income market remained positive, with treasury bills and Federal Government of Nigeria (FGN) bonds recording declines in average yields as investors sustained demand for government securities.
In the treasury bills secondary market, the average yield declined by one basis point to 17.8 per cent. Yields contracted across the short-, medium- and long-term segments of the curve, each recording a one-basis-point decline.
The movement was driven by buying interest in the 85-day-to-maturity, 176-day-to-maturity and 358-day-to-maturity instruments, which each recorded a one-basis-point yield contraction.
The Open Market Operations (OMO) segment also maintained a bullish trend, with the average yield declining by four basis points to 18.5 per cent.
Similarly, the FGN bond secondary market recorded improved demand, pushing the average yield down by seven basis points to 16.1 per cent.
Across the benchmark bond curve, yields declined at the medium- and long-term ends by 18 basis points and eight basis points, respectively, while the short end remained unchanged.
The March 2036 bond recorded a 24-basis-point yield contraction, while the June 2053 bond declined by 21 basis points, reflecting stronger buying interest in the two instruments.
The divergent movements across the foreign exchange, money and fixed-income markets highlight the different pressures shaping Nigeria’s financial system. While the naira faced renewed depreciation and short-term funding costs increased, demand for government securities continued to support lower yields in the secondary market.
