CBN may intensify OMO auctions to offset N429.6bn maturing T-bills

THE Central bank of Nigeria (CBN) is scheduled to repay N429.6 billion maturing Treasury bills with likely sum rolled over. The market players expect conduct of OMO auctions by the apex bank to offset maturities worth N560.9 billion.

And, in line with recent trend, rates at the auction are expected to remain at attractive levels to sustain investors’ interest.

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In its bid to prevent speculative sentiments in the market ahead of the upcoming Presidential Elections, the Central Bank of Nigeria (CBN) had adopted a more aggressive pace of OMO auctions on Tuesday and Thursday which left market liquidity in native region.

Tuesday’s auction saw the CBN offer OMO Bills worth N60.0 billion, although it was largely undersubscribed, at N10.7 billion despite attractive rates on the offer: 107-day (11.9 per cent), 170-day (13.5 per cent) and 317-day (15.0 per cent).

Furthermore, maturity expectations on OMO instruments worth N375.4 billion saw the issuance of another OMO tranche on Thursday in an offer worth N400.0 billion which was also largely undersubscribed.

Only the 364-day OMO bill was 1.13x subscribed while the 91-day (11.9 per cent) and the 189-day (13.5 per cent) were both undersubscribed by 0.12x and 0.02x.

Direction of rates in the secondary market saw money market rates – OBB (Open Buy Back) and OVN (Overnight) – rise further from 20.0 per cent and 23.8 per cent at close of the prior week to 22.7 per cent and 24.7 per cent this week.

Notably, these rates surged to 26.67 per cent (OBB) and 27.67 per cent (OVN) on Wednesday following Tuesday’s surprise OMO auction as system liquidity worsened to the negative region.

In the secondary T-bills market, bullish sentiment, especially for long tenor instruments, saw average yields decline 56bps to 13.52 per cent on Friday from 14.1 percent previous week.

At the Foreign Exchange Market, the Naira remained stable as support was sustained during review week. The local currency is expected to remain stable as the apex bank maintains its stance to keep the currency stable.

In the parallel market, Naira closed the week flat at N362.00/$1.00 due to CBN’s forex injection on Monday to boost sales in the wholesale segment of the market. Similarly, the CBN’s spot rate appreciated by 5kobo from N306.95/$1.00 to close at N306.90/$1.00.

In the Investors’ & Exporters’ (I&E) FX Window, the Naira opened the week at N365.30/$1.00 but appreciated 18kobo to close the week at N365.12/$1.00.

Likewise, the activity level in the I&E FX window rose 57.6 percent W-o-W to $866.5 million from $549.9 million in the prior week.

In the FMDQ OTC open futures contract market, total subscriptions rose 4.1 per cent W-o-W to $4.9 billion from $4.8 billion last week, with prominent buying interest observed in the May 2019 contract.

In its first intervention in 2019, the CBN had injected a total of $210million across various market segments – US$100.0m in the Wholesale and US$55nillion each in the SME and Invisibles (tuition fees, medical payments and BTA) segments.

The Bond Market witnessed moderate activity in both the primary and secondary markets as investors’ interest remains firmly focused on shorter term instruments.

Nonetheless, the yields on Treasury bonds pared moderately by 4 basis points to settle at 15.3 per cent with trades on the FMDQ OTC recorded at N95.3 billion relative to N160.0 billion over Q4:2018.

Yield on FGN bonds is expected to trend upwards over the short-term. The average yield on Nigeria’s Eurobonds pared in the week’s trading by 47bps, to settle at 7.5 per cent. There is a resurgence in interest in US Dollar denominated assets as investors remain wary of risk factors on the horizon that could potentially affect the value of the naira.