Boost for liquidity as CBN repays investors N65bn

The financial market will be awash with liquidity this week, following expected inflow from Open Market Operation (OMO) repayment worth N65 billion, according to financial market analysts.

OMO refers to the Central Bank’s buying and selling of short-term government securities in the open market in order to control the money supply.

On Thursday, the Central Bank of Nigeria (CBN) offered a total of N20 billion OMO for various tenor days at the Primary Market Auction (PMA).

A breakdown of the auction shows that the CBN offered N10 billion for 355-day tenor at a rate of 10 percent after investors bid at a range between 10.01 and 12.00 percent. The long term government security, which matures on May 16, 2023 was oversubscribed by N44.13 billion but N10 billion was successful.

For the medium term security, which is 187-day tenor, the CBN offered a total of N5 billion at 8.5 percent rate after investors demanded it at the range between 8.45 percent and 9.47 percent. The offer was oversubscribed by N11.29 billion but N5 billion was successful. The offer matures on November 29, 2022.

On the same day, the CBN offered for subscription to investors, N5 bill term short-term OMO instrument for 110-day tenor, which matures on September 13, 2022. It was offered at 7 percent after investors demanded a range between 6.95 and 7.97 percent. The offer was oversubscribed by N11.9 billion but N5 billion was successful.

The financial system liquidity closed lower at N53.1bn last week compared with N92.5bn in the previous week, a report by Afrinvest Securities Limited stated.

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“We anticipate sustained reactions to the increased marginal stop rates at the PMA, therefore yields might take a bullish turn as investors continue to hunt for opportunities.

In addition, system liquidity is expected to be bolstered by OMO maturities worth N65.0bn, to support improved demand levels during the week. Thus, we maintain our advice to investors to trade cautiously and take advantage of relatively attractive bills across the curve along with offers from corporates,” analysts at Afrinvest said.

The Treasury bill market opened the week on a calm note, albeit trading with mild bearish sentiment, ahead of the midweek Treasury bills PMA. The Monetary Policy Rate (MPR) hike and eventually stop rate hike at the PMA exacerbated the bearish sentiment. Activity during the week was however minimal, with yields closing 14bps, 40bps and 12bps higher on average, respectively, across NTB, OMO and Special bill papers.

“We expect to see improved activity this week, as the N65bn in OMO repayment, as well as FAAC inflows drive demand,” analysts at Parthian Partners, Africa’s premier inter-dealer broker, said.