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CBN resumes OMO auction, sells N1.075.85trn

investors scramble for longer tenure in anticipation of lower yield before year end

The Central Bank of Nigeria

Central Bank of Nigeria (CBN) on Thursday resumed its Open Market Operation (OMO) auction, selling a total of N1.075.85 trillion to investors for an offer of N400 billion.

At the opening of the auction, the CBN offered a total of N400 billion for various categories of tenure days but the investors oversubscribed it by 168.96 percent.

Ayodeji Ebo, managing director, Afrinvest Securities Limited, said due to the anticipation of lower yields before the end of the year, investors are investing in longer-dated bills to lock in on this current rate, hence the huge bid for the 364-day instrument.

In addition, Ebo said the CBN had also reduced the frequency of OMO auction in the past two weeks, leading to a decline in the secondary market rates.

The summary of the OMO auction showed that N50 billion was offered for 91-day tenure, which will mature on May 30, 2019. This was sold at 11.9 percent after the investors bided at the range of between 10.85 and 11.9 percent. It was oversubscribed by N55.51 billion.

However, investors could not subscribe fully the N100 billion offered for 182 days tenure with maturity date of August 29, 2019. They bided at a bid range of between 12.95 and 13.5 percent for an offer, which was undersubscribed by N92.59 billion at a stop rate of 13.5 percent.

The CBN offered N250 billion for 364 days tenure, which was oversubscribed by N1.2 trillion but the regulator was able to sell N927.75 billion at a stop rate of 14.3 percent. Investors bided at a bid range of 13.9 and 15.00 percent for the OMO security, which matures on February 27, 2020.

Consequently, the overnight interest rate, which is the rate at which banks borrow and lend to each other, on Thursday rose to 14.25 percent from 10.58 percent on the previous day.

Data from FMDQ revealed that the Open Buy Back (OBB), the money market instrument used to raise short-term capital, increased from 9.50 percent on Wednesday to 13.17 percent on Thursday.

Last week, the CBN conducted only two OMO auctions, which surprised investors. A report by AFrinvest indicated that at the first auction held on Monday, the Central Bank issued a no-sale result despite the 325.9 percent oversubscription to its total offer of N30bn (vs N127.8bn subscription) across the 101-, 178-, and 353-day tenors. This was to ease system liquidity on Monday (short N518.4bn).

Interestingly, at the second intervention on Thursday, the CBN prorated its allotment – for the first time in months – on its long-term offer of N400.0bn with an allotment ratio of 0.8x due to the significant demand (bid-to-cover ratio of 1.8x) while the short and medium-term offers of N50.0 billion and N100.0bn witnessed moderate demand, resulting in a bid-to-cover ratio of 0.2x and 0.5x, respectively.

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