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Debt Securities

Foreign investors shun CBN as latest OMO bills record zero bids

Foreign investors stayed away from the Central Bank’s latest OMO Auction which held on the 19th of March 2020.

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Decline in oil price has affected Nigeria’s financial capacity, CBN

Foreign investors stayed away from the Central Bank’s latest OMO Auction which held on the 19th of March 2020. According to the data seen by Nairametrics Research, there were zero bids for each of the OMO bills slated for sale by the CBN.

The Central Bank had about N140 billion on offer via the restricted Open Market Operations divided into N10 billion for 89-day and 180-day bills respectively and another N130 billion for a 362-day bill. The 362-day bill was offered at a range of bid of between 17% to 18.25%.

OMO Bills Flux – The CBN has over the last two years relied on selling OMO Bills to foreign and local portfolio investors at very high rates using it as a pseudo sterilizer of the naira and attracting the much needed foreign currency brought into the country by foreign portfolio investors. Since then OMO Bills have ballooned to an N18 trillion market until the CBN said it has had enough late 2019.

Data from the National Bureau of Statistics also shows inflow into money market instruments grew from $3.2 billion and $8.4 billion in 2017 and 2019 respectively to a whopping $13.4 billion in 2019.

READ ALSO: FDC forecasts February inflation to rise to 12.30%

The bank banned everyone except foreign investors and banks from accessing the OMO market all in a bid to push drive funds away from risk-free CBN securities to more risky assets that it believed had a more positive effect on the economy. The move left asset managers with trillions of naira hanging in the dry pushing them to the treasury bills market as they searched for alternative risk-free investments.

Since the ban, foreign portfolio inflow into money markets fell from $3.5 billion in the second quarter of 2019 to $2.5 billion and $1.4 billion in the third and fourth quarter of 2019. It was $5.8 billion in the first quarter of 2019.

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The latest data from the Central Bank of Nigeria revealed that Nigeria’s 364-day treasury bills have fallen to 4.6%. While the 90-day treasury bills current stop rate sold for 2.3%, the 182- day treasury bills sold for 3.4%.

The National Bureau of Statistics’ latest consumer price index revealed Nigeria’s inflation rate was 12.2%, the highest in years. At 12.2% inflation rate Nigeria’s inflation-adjusted real return for the 90-day treasury bills is about -11.9%.

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READ ALSO: Nigerian Treasury Bills real interest rate falls to -12%

Global Markets free-fall: However, it appears the global market sell-offs have left foreign investors with no choice but to exit emerging markets drying up any future security sale. Nigeria’s Eurobond yields are now selling for as high as 13.4% for the bond maturing 2025 due to widespread drop in bond prices. Bond prices have an inverse relationship with yield. If a bond prices go down the yield goes up and vice versa.

Stanbic 728 x 90

Effect on Forex: With the CBN recording a no show, it is likely that it will further hurt its ability or option to rely on OMO sales to foreign investors to maintain a robust foreign exchange reserve.

Nairametrics Research team tracks, collates, maintains and manages a rich database of macro-economic and micro-economic data from Nigeria and Africa. Our analysts share some of the data collated on Nairametrics, using formats such as docs, tables and charts etc. The team also publishes research based analysis as articles on a regular basis.

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    Debt Securities

    The Nigerian treasury bills hits 9%

    This increase is supposed to have a substantial impact on the Nigerian Stock exchange market.

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    Nigerian Treasury Bills falls to 3.05% per annum, Implications of the new CBN stance on treasury bill sale to individuals

    According to the primary market auction result, Nigerian Treasury Bills Yield held the 91-day and 182-day constant at 2.00% and 3.50% respectively.

    The 364-days Bill increased by 100 base point to 9.00% from its previous 8.00% interest. This increase is supposed to have a substantial impact on the Nigerian Stock exchange market.

    The 91-day and 182-day bills have remained relatively constant for the 4th consecutive auction. This increase in the 364-days Treasury Bill Yield may be seen to have a negative correlation in the stock exchange market as investors sell off their volatile positions and buy risk-free assets like treasury bills.

    Some analysts believe that the increase is in direct response to inflationary concerns as the CBN attempts to curb inflation without detouring growth.

    What this means

    • An increase in Treasury Bill Yield may cause a drop in the Stock exchange market as analysts expect selloffs to continue towards the end of the week.
    • Persistent inflation concerns may lead the CBN to take more aggressive steps and increase the treasury bills rates even higher.
    • The banking sector is expected to benefit from the increase as they shift their focus from stock to fixed income.
    • Analysts expect that a higher yield trend will boost foreign direct investment, which is aligned with the CBN policy of increasing foreign inflows.
    • Some market participators see the increase as a good sign. However, the consensus was held for a steady slow increase rather than an eccentric rate change.

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    Business

    DMO reveals what infrastructure Sukuk Fund is financing

    The Debt Management Office revealed that Sukuk funding is currently rehabilitating the Outer Marina Road in Lagos.

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    The Debt Management Office revealed that Sukuk funding is currently rehabilitating the Outer Marina Road which is a major road connecting Lagos Island to Victoria Island, Falomo and Ikoyi.

    The DMO disclosed this in a statement on Wednesday evening.

    “While the Outer Marina Road is a major artery on its own, It will also be instrumental to easing the traffic in Lagos during the repair of Falomo Bridge. Thanks to the SUKUK, we are able to rebuild Nigeria one infrastructure at a time,” it said.

    READ: Investors scramble for DMO sovereign sukuk as it records 446% oversubscription

    READ: Abigail Johnson is the world’s richest in finance, manages a $5 trillion investment company

    What you should know 

    The Debt Management Office (DMO) announced last month that it listed its third sovereign Sukuk, N162.557bn 7-year 11.200% AL Ijarah Sovereign Sukuk due 2027, on the Nigerian Stock Exchange and the FMDQ Securities Exchange.

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