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Foreign investors shun CBN as latest OMO bills record zero bids

Research Team by Research Team
March 20, 2020
in Markets, Securities, Spotlight
Decline in oil price has affected Nigeria’s financial capacity, CBN
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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%.

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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.

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%.

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.

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.


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Tags: CBNCentral Bank of Nigeria CBNEurobondforeign investorsForeign Portfolio InvestorsNigerian Business NewsOMO Billsstock market investorsTreasury Bills
Research Team

Research Team

The Research Team at Nairametrics meticulously monitors, gathers, curates, and administers an extensive repository of both macroeconomic and microeconomic data originating from Nigeria and across Africa. Utilizing a variety of presentation formats—including documents, tables, and charts—our analysts disseminate key findings through the Nairametrics platform. Additionally, we regularly release insightful, research-driven articles that offer in-depth analyses of economic trends and indicators.

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Comments 2

  1. Abdul Adeniji says:
    March 20, 2020 at 2:31 pm

    I am not adept in finance. My observation is
    that the rate of inflation is too far away from the rate paid on TBs, that is a misnomer. Now that the foreign investors are drying up , I hope the CBN Will give consideration to local investors.

    Reply
  2. Ochiabuto emeka says:
    March 20, 2020 at 4:09 pm

    Most times the policy makers think on their purpose rather than on the economy. How will you expect another countries national (Nigerian nationals in diaspora inclusive) to invest in what you banned your domestic nationals from investing in.

    Most times policy is not about quantitative analysis or qualitative analysis, is just a matter of “common sense”

    Reply

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