The Nigerian financial market will witness increased liquidity following the expected maturing Open Market Operation (OMO) bills which will be auctioned by the Central Bank of Nigeria (CBN) this week.
New OMO issuances will now mature on Tuesday rather than Thursday as the CBN aims to help investors differentiate between OMO bills and NT-Bills in the money market, Afrinvest Securities Limited said in a note.
Also this week, momentum in demand is expected to be sustained due to the volume of unfilled bids at the primary market auction (PMA) last week.
“Retail investors and local corporates are advised to trade cautiously and position in NT-Bills with attractive yields as we expect yields to continue to decline on the back of increased demand,” analysts at Afrinvest said. “Nonetheless, N-T-Bills rates remain attractive relative to other money market investments due to the tax free and upfront interest advantages.”
The CBN conducted an OMO auction last Thursday, offering a total of N330.0bn across the 96-day, 187-day and 362-day instruments. The short and medium tenor instruments were undersubscribed at 0.3x and 0.2x, respectively, while the longer tenor bill was oversubscribed at 1.8x. Subsequently, the apex bank allotted a total of N363.09 across all three tenors with stop rates clearing at 11.6 percent, 11.8 percent and 13.3 percent, respectively.
The Overnight (O/N) rate on Monday declined by 0.21 to close at 3.86 percent, while the Open Buy Back (OBB) rate increased by 0.14 percent to close at 3.14 percent.
So far in 2019, the fixed income market has leaned towards a bullish posture, as foreign portfolio investment inflows into the country significantly improved in H1 2019, according to FSDH Merchant Bank Limited.
As at October 25, yields moderated across all tenors, when compared with yields in December. This also signals sustained interest of both domestic and foreign investors in both short- and long-term securities, especially given the weak performance of the equities market, FSDH said in a note.
In the fixed income market, the CBN recently limited access to OMO auctions to foreign investors.
Following this, analysts at FSDH said they expect yield to moderate slightly towards the end of the year as funds will flow into the secondary market.
“We expect more foreign inflows into the money market, given the sustained appetite for short-term instruments,” the analysts said.
The FSDH analysts said economic outlook is bleak with pressures on output, reserves and prices.
Nigerian economy is expected to grow at around 2 percent in 2019. This will be lower than the 2019 target of government’s ERGP of 4.5 percent. Economic growth will remain below population growth of 3.1 percent, with implications on real income per capita.
HOPE MOSES-ASHIKE
