Nigeria’s financial market would be awash with liquidity estimated at N595.3 billion from maturities from Open Market Operation (OMO) and the Nigerian Treasury Bills (NTB).
A breakdown of the up-coming liquidity shows that N440.9 billion will mature from OMO while N154.4 billion will come from the NTB.
This week, the Central Bank of Nigeria (CBN) is scheduled to roll over maturing bills worth N154.4 billion through the Primary Market Auction (PMA) across the 91-day (N4.4bn), 182-day (N10.00bn) and 364-day (N140.0bn) tenors.
Consequently, the apex bank is expected to mop up the excess liquidity through OMO auction this week.
OMO simply means the buying and selling of government securities, which enables a central bank to control the supply of money in the banking system.
OMO maturities worth N349.0 billion hit the financial system last week and the CBN intervened through its customary OMO auction. Instruments worth N150.0 billion were offered across the 82-, 180- and 362-day tenors in order to mop up system liquidity. As seen in recent times, there was “no sale” on the short-tenor bill while the mid- and long-dated bills recorded a total sale of N128.2 billion putting subscription level at 2.0x and 0.8x, respectively. Thus, clearing rate settled at 11.60 percent and 13.05 percent, respectively.
The Nigerian Treasury Bills’ performance at the secondary market last week was bearish as investors shied away from the low-yield environment in the NT-Bills space to take position in the relatively attractive FGN promissory notes and commercial paper issuances. Thus, average yield climbed 12bps to settle at 3.9 percent Week-on-Week. Major sell-offs were witnessed on the 27-FEB-20 (+140bps) and 12-MAR-20 (+94bps) instruments while the 30-APR-20 (-76bps) maturity enjoyed the most buying interest.
“We believe yields in the NT-Bills space may sustain its bearish stance from last week as investors may seek higher yields from the PMA and alternative investments given the low-yield environment. We advise risk-averse investors to cherry pick bills with attractive yields,” said analysts at Afrinvest Securities Limited.
Activities in the domestic bonds market mirrored happenings in the NT-Bills market as the cash reserve ratio (CRR) debits by the apex bank last week contracted banks’ liquidity. Although there was an inflow from OMO maturities into the system during the week, this was unable to offset the impact of the CRR debits. Consequently, average yield rose by 15bps to settle at 9.7 percent Week-on-Week.
The 13-FEB-20 (+185bps) suffered the most sell-offs as it approaches maturity, trailed by 15-JUL-21 (+27 bps). Conversely, the 27-JAN-22 (-20 bps) enjoyed the most buying interest.
“This week, we anticipate an increased level of demand in the bonds market following an expected improvement in system liquidity coming from OMO and NT-Bills maturities, as well as the FGN bond coupon payment. We expect investors’ continuous bargain for high-yielding assets to reinvest matured funds while awaiting the FGN bonds auction next week. Thus, investors are advised take advantage of instruments with attractive yield,” the analysts said.
