Investors interests for higher yield was elevated on Thursday as they rush the longer tenor Open Market Operation (OMO) bill at an attractive stop rate of 13 percent.
The Central Bank of Nigeria (CBN) offered N400 billion to investors who participated in the OMO auction on Thursday but sold a total of N480 billion.
“OMO investors interest has always been skewed towards the longest duration that offers the most attractive yield,” Akintunde Olusegun, financial market analyst at Polaris Bank Limited, said.
He told BusinessDay that the lure to lock in for one year at an attractive yield accounts for the interest in 362-days OMO bill.
A breakdown of the OMO auction result show that the CBN offered N350 billion for the 362-day tenor instrument but sold a total of N476.42 billion at 13 percent, after investors demanded between 12.7 percent and 13 percent stop rate. The offer which matures February 23, 2021, was oversubscribed to the tune of N534.92 billion.
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Investors could only subscribe N1.36 billion out of N30 billion offered for the short term (180-day tenor) bill at a demand rate of 11.56 percent.
However, the CBN sold only N0.47 billion out of the total offer, which matures on August 25 2020, at the demanded stop rate.
The short term bill 89-day tenor was undersubscribed to the tune of N8.95 billion at a bid rate of 11.44 percent for a N20 billion OMO instrument. The Apex bank sold a total of N3.11 billion at the demanded stop rate. The offer is expected to mature on May 26, 2020.
The during the week that just ended, OMO maturities worth N927.75 billion and Treasury bill maturities worth N104.12 billion hit the market, which surpassed the outflows from OMO bills auction worth N480 billion and NT-bills auction worth N104.12 billion.
“We expect the money market rates to cool off next week,” analysts at FSDH said. Overnight rate increased by 13.92 basis points to close at 16.42 percent on Friday as against 2.50 percent on Thursday. Also, the Open-Buy-Back (OBB) rate also increased by 13.50 basis points to close at 15.50 percent on the same day from 2.00 percent on the previous day.
In spite of the liquidity glut, the money market rates increased significantly on Friday by an average of 1371 basis points due to funding provision for retail foreign exchange debt estimated at N270 billion.
In the OMO market, Guy Czartoryski, head, research Coronation Asset Management said the first key test of 2020 has been passed, namely US$1.71 billion of Foreign Portfolio Investment entered via the Nigerian Autonomous Foreign Exchange Fixing (NAFEX) market in January, almost certainly destined for the OMO market
A substantial part of the CBN’s FX reserves can be attributed to the FPI hence, the need to maintain foreign interest in the OMO market in 2020.
He said the next test is February. Does FPI continue to enter the OMO market in spite of oil prices (Brent) at US$54.00/bbl and concerns over the global spread of the coronavirus? Czartoryski quarried.
Nigeria’s external reserves have declined to $36.32 billion as at February 27, 2020 from $40.0 billion in July 2019, data from the CBN revealed.
OMO yields of Africa’s largest economy look comparable to risk-free yields of local currencies in other markets, notably Ghana and Egypt when it comes to competing for global local-currency capital flows, Czartoryski said.
