High demand for OMO bills as yields top 10%

Demand for OMO bills remains high in Nigeria with investors offering to buy more than five times the amount of securities sold at Thursday’s auction.

In that auction, investors offered to buy 5.2 times the amount of securities sold, with yields of 10.1%.

Treasury bills with similar maturities offer about half those returns as the country’s central bank hopes to use the short-term bills to lure portfolio investors and shore up the naira after the crash in crude prices led to a dollar shortage.

The central bank has also denied that it plans to freeze foreigners out of this lucrative short-term bills market.

“There is no plan by the CBN to stop OMO sales to foreigners,” central bank spokesman Osita Nwanisobi told Bloomberg Thursday, referring to Open Market Operations bills.

Governor Godwin Emefiele also said in an interview with a Lagos-based newspaper that the central bank isn’t thinking about excluding offshore investors from the short-term bond market.

The bank had outstanding OMOs of $8.3 billion as of March 4 from $31.9 billion as at the end of 2019, according to data compiled by Bloomberg.

This was after barring domestic funds from buying the securities and reducing new issuances as the cost of offering the instruments spiked.

In the foreign exchange market, the CBN intervened through its periodic supply of UD dollars last week offering a total of $100.00 million via the Secondary Market Intervention Sales (SMIS) Wholesale Window on March 2, 2021.

In the Investors’ & Exporters’ (I&E) FX Window, the total value of trades for the week-ended February 26, 2021, stood at $476.33 million, representing an increase of 101.48% ($239.91 million) from the $236.42 million reported for the week-ended February 19, 2021, and bringing the total value of trades at the Window year-to-date, to $2,543.04 million

In the FX Futures market, $138.91 million worth of FX Futures contracts were traded in thirteen (13) deals during the same period, compared to the total of $235.30 million traded in twenty (20) deals recorded in the week-ended February 26, 2021

A review of trading activities in the Spot FX market amongst banks for the week-ended February 26, 2021, revealed a decrease of 58.11%, as a total turnover of $184.37 million (average daily turnover of $36.87 million) was recorded against $440.11 million (average daily turnover of $88.02 million) reported the week-ended February 19, 2021 according to a report by FMDQ.