The Central Bank of Nigeria (CBN) offered a total of N160 billion to investors via Open Market Operation (OMO) auction on Thursday.
The offer was oversubscribed to the tune of N355.02 billion with a total sale of N114 billion across three tenors.
Huge liquidity in the market looking for safe investment outlet at reasonable yields is the main reason for the oversubscription, said Ayodele Akinwunmi, relationship manager, investment banking at FSDH Merchant Bank Limited.
The implications are: the cost of managing the liquidity for the CBN has dropped and the foreign investors’ high appetite for OMO securities is high.
He said the CBN may reduce the rates further to mop up liquidity given the high level of interests in the instrument.
A breakdown of the OMO auction last week showed that the CBN offered N50 billion for the 82-day tenors at 7% stop rate. It also allotted N50 billion for the 180-day instrument at the stop rate of 8.75 percent, while N60 billion was offered for the 348-day tenor bill at 9.90 stop rate.
The over subscription according to Olusegun Akintunde,Akintunde, financial market analyst at Polaris Bank Limited, was due to increase system liquidity.
Liquidity on the day of the auction was buoyed by OMO maturity of N303bn and FGN bond coupon payment of about N5.59bn. Investors mostly Banks sought to reinvest this liquidity via the OMO auction.
The fact that only N114bn was allotted at the OMO auction leaves ample liquidity in the system.
What this means is that this liquidity will definitely find it’s way into OMO and Bonds auction thereby dragging down yields.
Analysts at Afrinvest Securities Limited advise investors with a longer-term perspective to take advantage of the 7-year Sukuk Bond offer at a rental rate of 11.2% which closes tomorrow, June 2, 2020.
“We expect sustained buying interests in the secondary market due to the unfilled bids from last week’s auction,” the analysts said.
In addition to selecting attractive instruments across the NT-Bills secondary market, Afrinvest analysts recommended that investors seek other attractive opportunities such as available Commercial Papers (CP) offers. Qualified investors are advised to conduct all necessary due diligence on the issuers of these offerings.
MTN Nigeria Communications Plc is seeking to raise up to N50.0bn in Series 1 and Series 2 Commercial Paper issuance under its N100.0bn Commercial Paper (CP) Programme in order to support its working capital and general corporate purposes.
A report by Afrinvest revealed that demand in the Nigerian Treasury Bills (NT-Bills) secondary market was muted at the start of the 3-day trading session last week as investors anticipated at the Primary Market Auction (PMA).
However, activity level picked up at the end of the week as demand due to lost bids at the Open Market Operation (“OMO”) and primary market auctions filtered into the market. As a result, average yield across all tenors dipped marginally by 5bps W-o-W to close at 2.1% on Friday.
Strong buying interests were witnessed across the short and medium-term bills, with yields on the 12-Nov-2020, 16-Jul-20 and the 2-Jul-20 maturities declining by 39bps, 38bps and 25bps respectively.