The Nigerian inter-bank market on Friday witnessed a rise in the cost of borrowing, following a mop-up of excess liquidity from the banking system via Open Market Operation (OMO) by the Central Bank of Nigeria (CBN).
“This is due to more attractive rates in the secondary market. Offshore investors have continued to take profit on their fixed income investments in Nigeria”, Ayodeji Ebo, managing director, Afrinvest Securities Limited told BusinessDay.
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.
The CBN on Thursday OMO auction offering N150 billion to investors in the secondary market but the short and medium-term instruments were gripped with low patronage due to high rates.
Consequently, the overnight inter-bank rate which is the rate at which Deposit Money Banks (DMBs) borrow and lend to each other, rose to 19.57 percent on Friday from 12.64 percent recorded the previous day.
Also, the Open Buy-Back (OBB), the money market instrument used to raise short term capital, increased from 11.71 percent on Thursday to 18.00 percent on Friday.
Of the total amount offered by the CBN, a total of N115.89 billion was subscribed by investors but the sum of N88.66 was sold.
The breakdown of the OMO auction show that N20 billion was offered for 84 days tenor and it was undersubscribed by N5.89 billion. Investors bided at a bid range of between 11.79 percent and 12.68 percent but there was no sale and no stop rate.
For the 175 days tenor, the CBN offered a total of N30 billion at a stop rate of 11.8 percent although investors earlier sought to buy at a bid range of between 11.25 and 12.48 percent. The offer which matures on February 6, 2020 recoded a total sale of N0.69 billion.
The sum of N100 billion was offered for 364 days tenor but a total of N87.97 billion was sold at a stop rate of 12.88 percent after the investors earlier bided at a range of between 12.25 and13.50 percent. The instrument was oversubscribed by a total of N106.27 billion and will mature on August 13, 2020.
Godwin Emefiele, governor of the CBN said in London that the regulators will offer more OMO auctions to counter the upcoming maturities due in September /October. There have been fewer OMO auctions of late. In fact, there may be a requirement to increase yields a bit here to maintain Nigeria’s relative attractiveness to Egypt for fixed income flows (CBN argues Nigeria could remain attractive to Egypt on slightly lower yields given the FX stability).
The CBN on Wednesday after the two day holiday conducted a Primary Market Auction (PMA), rolling over maturing bills worth N34.4 billion across 91, 182 and 364-Day Tenors.
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.
A report by Afrinvest revealed that on Wednesday last week, the Apex bank offered a total of N100.0bn across three tenors (85, 183 and 344-Day). However, the CBN did not allot any sale on the mid-term bill despite 2.9x oversubscription while the short- and long-term bills were both oversubscribed with bid-to-cover ratios of 1.2x and 3.8x respectively.
“We advise investors to cherry-pick bills with attractive yields across the short-medium term space as the sell-offs may persist this week”, the analysts said.
The report indicated that Last week, the Treasury Bills secondary market performance started on a mildly bullish note as market players showed interest on short-term bills in the first trading session due to the high system liquidity (N191.7bn positive) on Monday.
This was however short-lived, following a reduced demand on mid and long-term bills by Tuesday as investors awaited the OMO. On Thursday, the bullish trend was reversed as offshore investors sold off big across all tenors pushing average yields up by 1.3 percent. Thus, average yield on the short- medium- and long-term bills advanced 177bps, 159bps and 94bps respectively.
