The Central Bank of Nigeria (CBN) on Friday re-issued the N400 billion Open Market Operation (OMO) auction, which recorded improved sales with a slight increase in the stop rate especially for the longer term instrument.
In a bid to mop-up excess liquidity from the system, the CBN on Thursday issued N400 billion via OMO but this recorded low sales as investors demanded higher rate, which the regulator was not willing to grant.
The CBN was able to sale N48.05 billion out of the total amount offered (N400bn) on Thursday at the stop rate of between 11.59 percent and 13.00 percent for the various tenor days of the OMO instrument.
OMO simply means the buying and selling of government security, which enables a central bank to control the supply of money in the banking system.
On Friday, the CBN re-auctioned the same amount with slight improvement on the longer tenor bill rate and it recorded improved sales.
Consequently, a total sale of N222.12 billion was recorded on Friday compared to the sum of N48.05 billion achieved the previous day. The stop rate for the 364 days tenor bill increased to 13.5 percent on Friday from 13 percent on Thursday.
“In line with our expectation, the stop rate improved for the 364 day instrument from 13.0 percent to 13.5 percent. This will guide rates upwards in the secondary market on Monday,” Ayodeji Ebo, managing director, Afrinvest Securities Limited said in response to BusinessDay.
On Thursday, N100 billion each was offered for the 91 days tenor and the 189 days at the stop rate of 11.59 and 11.79 percent respectively. The same amount was issued on Friday at the same stop rate but for 90 days and 188 days tenors.
The maturity date remained the same at November 28, 2019. Investors’ bid range of between 11.59 percent and 12.50 percent, also remained the same but total subscription for the Friday auction was higher at N5.39 billion compare with N12.50 billion on Thursday. Total sale of N2.89 billion was recorded on Friday vs N1 billion the previous day.
A total subscription of N2.99 billion was achieved on Friday for 188 day tenor bills but N2.48 billion was sold. The stop rate and the maturity date remain the same as on the previous day. On Thursday, total subscription for the 189 days OMO instrument stood at N7.31 billion, which was far too below the initial amount offered. The offer which matures on March 5, 2020, recorded a total sales of N1.38 billion at a stop rate of 11.79 percent although the investors earlier demanded between 11.79 and 13.10 percent rates.
For 363 days tenor, the CBN re-issued N200 billion, which it offered for 264 days on Thursday but the auction recorded N216.75 billion sales as against N45.67 billion sold on Thursday. Total Subscription stood at N228.75 billion on Friday compared with N290.83 billion on Thursday. The offer, which matures the same day of August 27, 2020 saw investors requesting at a bid range of between 12.98 percent and 14.50 percent vs. 12.99 percent and 14.50 percent on Thursday.
The overnight inter-bank rate – the rate at which, banks borrow from and lend to each other increased by 3.14 percentage point to 10.50 percent on Friday from 7.36 percent the previous day.
Also, Open Buy-Back (OBB), which is the money market instrument used to raise short term capital, rose from 6.29 percent on Thursday to 9.29 percent on Friday according to data from the FMDQ.
Ebo explained on Thursday that investors demanded for higher rates as observed in the range of bids especially for the long term bill. However, the CBN did not succumb to investors demand, hence the low sales level.
Godwin Emefiele, governor of the CBN said recently in London that the regulators will offer more OMO auctions to counter the upcoming maturities due in September /October.
Ayodele Akinwunmi, head, research, FSDH Merchant Bank Limited said over N9.6 trillion worth of government securities are expected to mature in the financial market between August and December this year.
