Of recent, the Open Market Operations (OMO) being conducted by the Central Bank of Nigeria (CBN) have been undersubscribed in spite of attractive stop rates.
The CBN in the just concluded week continued its OMO auctions in order to control system liquidity and ultimately check speculative exchange rate pressures.
Consequently, yields maintained an upward trend reflecting soft sentiments and an overall bearish performance.
In one of the regular OMO auctions, on Wednesday, the CBN offered a total of N60 billion for subscription by investors in the financial market.
The breakdown of the auction result show that the N10 billion offered for 107 days tenor at a stop rate of 11.9 percent, was undersubscribed as the total subscription/sale stood at N0.157 billion. This would mature on April 25, 2019.
For the tenor of 170 days, the CBN offered the sum of N20 billion at a stop rate of 13.5 percent. The security which matures on June 27, 2019 was undersubscribed N0.7615 billion.
Also, the CBN offered N30 billion for 317 days at a stop rate of 15 percent, to mature on November 21, 2019. The offer was undersubscribed by N9.95 billion.
Responding to the reason for the low subscription in spite of the attractive rates, Ayodeji Ebo, managing director, Afrinvest Securities Limited, attributed it to tight liquidity which has resulted to double digit rates at the inter-bank market.
The overnight interest rate, which is the rate at which banks borrow and lend short-term money to each other has risen to a high of 62.50 percent as at December 12, 2018, the highest since August 2018, compared to single digit of 3.58 percent as at November 5, 2018, data compiled by BusinessDay and sourced from FMDQ indicated.
However, as at Thursday last week, the overnight rate stood at 24.67 percent, while the Open Buy Back (OBB) closed at 22.67 percent on the same day.
In his emailed response, Ayodele Akinwunmi, head, research, FSDH Merchant Bank Limited said, “it is an indication that investors are expecting higher yields than what the Central Bank of Nigeria offers at the moment. The increase in yield is in line with the consensus in the market”.
The CBN will in the first quarter of 2019 issue N823.43 billion worth of Treasury Bills, while N985.93 billion will mature in the same period.
A breakdown of the Nigerian Treasury Bills issue programme for the Q1 2019 released on Tuesday last week by the CBN show that a total of N59.02 billion Treasury Bills for 91 days tenor, N248.84 billion for 182 days, and N678.05 billion for 364 days tenor, will hit the financial market in the first quarter.
The CBN will rollover a total of N51.45 billion for 91 days tenor, N164.91 billion for 182 days and N607.05 billion for 364 days tenor, in the same period.
A report by Afrinvest revealed that in the first week of the year, liquidity in the system was enhanced by a N690.0 billion inflow from OMO repayments of N424.5 billion and net primary market auction (PMA) repayments of N265.5 billion.
However, this was short lived as system liquidity declined following Wednesday’s (January 02) PMA which was oversubscribed. The attractive stop rates drove investor appetite as subscription levels rose across all tenors issued, with the 91-day (stop rate – 10.899%), 182-day (stop rate – 13.100%) and 364-day (stop rate – 14.500%) with instruments oversubscribed by 2.0x, 1.2x and 1.6x respectively.
on Thursday (January 4), the CBN held an OMO auction which was undersubscribed given the diminished level of system liquidity despite higher rates offered on the instruments (91-day: 11.9%, 182-day: 13.5% and 364-day: 15.0%). Bid-to-offer levels on the 91-day, 182-day and 364-day instruments were recorded at 0.6x, 0.4x, and 0.6x respectively on offers of N50.0 billion, N100.0 bilion and N300.0 billion accordingly.
Ololade Akinmurele
