Investors chase N12.14 trillion in OMO bills as CBN rates fall

The Central Bank of Nigeria (CBN) closed September with two Open Market Operations (OMO) auctions that attracted N12.14 trillion in bids despite falling rates, suggesting investor demand remained strong even as yields moved lower.

Nairametrics’ analysis of the September 24 and 29 auction results show investors submitted N12.14 trillion in bids against N3.4 trillion offered across the two sessions, while the CBN allotted approximately N6.94 trillion.

This means subscriptions were about 3.57 times the amount offered, while eventual allotments were more than twice the original offer. The auctions also came after the Monetary Policy Committee reduced Monetary Policy Rate by 350 basis points to 23%, and an intensified liquidity withdrawals.

OMO demand holds as rates fall:

Demand was particularly strong at the September 24 auction, when the CBN offered N900 billion across 152-day and 180-day instruments and received N5.741 trillion in subscriptions. Five days later, investors submitted another N6.399 trillion against N2.5 trillion offered across 147-day, 182-day and 266-day securities.

• Rates nevertheless moved lower across both auctions, extending the decline recorded throughout September.
• The 180-day instrument attracted N3.883 trillion against N450 billion offered on September 24, equivalent to about 8.63 times the offer.
• On September 29, the newly introduced 266-day instrument attracted N4.543 trillion, representing about 71% of total subscriptions that day, with N2.996 trillion allotted.
• The 152-day and 180-day instruments cleared at 17.29% and 16.99%, respectively, while the comparable 147-day and 182-day bills cleared five basis points lower at 17.24% and 16.94% five days later.
• The 266-day instrument cleared at 16.23%, although CBN-provided true yields across the September 29 instruments remained tightly grouped between 18.4072% and 18.5263%.

Stop rates on longer tenors declined by about 170 basis points during September from 18.99% at the start of the month, even as subscriptions remained several multiples above the amounts offered.

High Yields keep investors interested:

Speaking to Nairametrics, David Adonri, CEO of Highcap Securities Limited, attributed the resilience of demand partly to the attractiveness of Nigerian fixed-income yields compared with global rates.

He argued that even after the MPR reduction, OMO yields of 17% and above remained attractive to both domestic and foreign investors. Adonri also pointed to naira stability as another factor that could support offshore demand for naira-denominated instruments.

• “OMO rate may not align fully with the MPR because the OMO rate is market determined by what the buyers or sellers in the market decide.”
• “Secondly, even at MPR of 23%, OMO yield of 17% and above is still one of the highest in the world and still very attractive to investors, both foreign and domestic. It’s not even near a single-digit rate.”
• “There was a little favourable reaction in the equity market soon after the heavy rate cut… but the reduction in rate is still not material enough as to cause financial assets to migrate massively from there to equities.”
• “The Naira has not only been stable, it has been appreciating. So, foreign investors gain from both sides — from appreciating Naira, and from the rate itself, which is very high.”

Adonri’s comments suggest that the absolute level of Nigerian yields, rather than simply the direction of rates, remains important in explaining demand.

Wider access boosts OMO demand:

Tajudeen Olayinka, CEO of Wyoming Capital Partners Limited, offered another explanation, arguing that the MPR reduction largely reflected an adjustment to conditions that had already developed in the fixed-income market. He said government securities, including OMO bills, were already trading below 20% before the MPC decision.

Olayinka also attributed stronger OMO demand partly to the expansion of participation beyond the narrower investor base that previously dominated the market.

• “Most of those government securities, including OMO, were trading below 20% yield… at that point, it was essential for the Monetary Policy Committee to reset that.”
• “The transmission mechanism was not so effective. That’s because of the way the market is structured.”
• “The expanded mixture of participation in OMO necessitated what we are seeing now. They now allow retail investors to participate. Unlike before, when they only restricted it to banks and foreign portfolio investors, now everybody is participating there… Once the demand is high, the yield will go down. That’s what is driving the yield down.”
• “There is nothing to suggest that investors are reacting to the sharp cut. The market has already corrected itself before that sharp cut… It’s an alignment. It’s not necessarily a cut.”

His assessment suggests that the combination of broader participation and abundant liquidity could continue supporting OMO demand even as yields gradually decline.

Longer OMO tenors draw demand:

The wider liquidity data reinforces the picture of a financial system that remains liquid despite heavy CBN sterilisation. Banks still had more than N4.6 trillion placed at the Standing Deposit Facility as of October 2, even after the apex bank’s aggressive September OMO sales.

• With August inflation at 15.39%, CBN-reported true yields of around 18.4% to 18.5% at the September 29 auction also remained above inflation before taxes, transaction costs and exchange-rate movements.
• Total OMO sales reached approximately N17.51 trillion across five September auctions, against N10.89 trillion in repayments, leaving net liquidity withdrawal of about N6.62 trillion.
• The September 29 allotment of N4.686 trillion was nearly twice the N2.433 trillion OMO repayment maturing on the same day.
• The 266-day instrument attracted N4.543 trillion in subscriptions, equivalent to 4.54 times the N1 trillion originally offered, and extends OMO maturities into 2027.
• The CBN does not disclose subscriptions by investor category, meaning the auction results cannot establish how much of the strong September demand came specifically from foreign portfolio investors.

The next OMO auctions in October will therefore provide further evidence of whether investors continue favouring longer-dated instruments as rates decline and the gap between the MPR and actual OMO yields narrows.