SDF Placements Reduce as Banks Rotate Funds into OMO Bills
The amount placed in the Standing Deposit Facility (SDF) of the Central Bank of Nigeria (CBN) eased by 8% as deposit money banks (DMBs) rotated into OMO bills to boost their investment securities.
The excess liquidity in the financial system opened up investment options for market players targeting opportunities in money market instruments.
Banks have the choice to lend or invest in short-term securities, but preference has been given to placement with the CBN at a 22.50% SDF rate. The Apex Bank, however, floated N600 billion in OMO bills across short-term tenors on Thursday.
A previous OMO auction ended without allotment despite a total subscription of N1.3 trillion. At the recent auction, foreign portfolio investors and banks staked N2.7 trillion to chase N600 billion in OMO bills offered by the CBN.
A total of N1.3 trillion in allotment was made across tenors, while more than 50% of the subscription was turned down. The CBN sold OMO Bills with 215 days maturity to investors at 19.49%, a day after it priced Nigerian Treasury bills with 364 days tenor at 17.95%.
Still, the money market liquidity has remained strong amidst these primary market actions seeking to manage surplus funding profile.
According to investment firms, the financial system liquidity opened the day with a surplus balance of ₦3.5 trillion, representing a ₦521.3 billion moderation or a 13% day-on-day decline compared to the previous level.
This moderation was driven by 8% decline in placement in CBN’s SDF window by the DMBs to ₦3.5 trillion, according to AIICO Capital Limited, alongside a negative net flow from the previous treasury bills auction.
As expected, the financial system was debited for the midweek auction with a total settlement of ₦788.2 billion, balanced against ₦512.0 billion inflows from matured treasury papers.
During the day, the CBN conducted an OMO auction of ₦600 billion across 180- and 215-day tenors and allotted ₦1.3 trillion across the two maturities.
Despite this, average funding cost eased slightly as the Open Repo Rate (OPR) held at 22.50%, while the Overnight (O/N) shed 1bp to 22.79%.
Amid the expected outflow of ₦1.3 trillion settlement of the OMO auction, analysts said they expect market liquidity to open moderately on Friday and drive funding rates slightly higher.
Elsewhere, Nigerian Interbank Offered Rates showed mixed performance on Thursday, with the overnight rate falling 4 bps to 22.82%, supported by enhanced system liquidity, as the standing deposit facility stood strong.
Treasury Bills secondary market yields fell across all maturities, with the 1-month, 3-month, 6-month, and 12-month tenors decreasing by 20bps, 10bps, 24bps, and 2bps respectively. The overall NT-Bills average yield declined 12bps to 17.62%, signalling positive investor confidence in the secondary market.
