Battle against inflation, CBN sold bills worth N1.404 trillion in September

In September, in a bid to influence the inflation rate, the apex sold bills worth N1.404 trillion in five open market operations. This happened to be 10 times the amount of liquidity mopped up in the preceding month of August.

Greenwich Trust Limited, in its monthly fixed income insight, revealed that it witnessed a mixed theme in the treasury market for the month of September. The firm revealed that yields tracked lower in the bills market while the bonds market experienced a marginal spike in average yields.

According to GTL, buy pressure persisted in the bills market due to high liquidity originating from maturing bills. It added that in the month, the average yield dipped by 402 basis points to settle at 13.28% from 13.84% in the prior month.

There was massive buy pressure across the March 2020 maturities, consequently pushing yields southward by 2,056 basis points to settle at 12.57% from 15.87% the prior month, it added.

In the review, the firm recalled that the Apex bank in September mopped up liquidity in a feat to curtail inflationary pressure by conducting five open market operations (OMO), selling bills worth over N1.404 trillion, representing 10 times the amount sold in August.

Nonetheless, this was lower than the maturities of N1.849 trillion in terms of OMO bills in September.

As scheduled, the CBN conducted its Primary Market Auction (PMA), selling bills worth over N338 billion across the 91, 182 and 364–day maturity at an average stop rate of 11.10% (prev. 10.18%), 11.77% (Prev. 11.18%) and 13.29% (prev. 12.02%) representing 9.04%, 5.28% and 10.57% upside respectively with demand largely skewed towards the 364 maturities.

Going forward, the average yield at the bonds market soared meagerly by 11 basis points to settle at 14.15% from 14.13% the prior month, majorly due to a 200 basis point spike in yields across March 2025 and March 2036 maturities.

GTL stated that it continued to see seldom interest in the bond space as compared to persistent buy sentiments in the bills market. The DMO in September auctioned bonds across the 4, 10 and 30 year-to-maturity (YTM) at 14.39% (prev. 14.29%), 14.43% (prev. 14.39%) and 14.64% (prev. 14.59%) respectively.

Having noticed sparse demand for the 4-year maturity, however, investors favoured the 10-30 year maturity, recording a bid to cover ratio of 1.40x.

Meanwhile, at the liquidity front, the banking balance closed significantly lower by 75% to settle at N195 billion in September compared to N789 billion the prior month.

It added albeit, the overnight (O/N) and the Open buy back rate (OBB) softened by 16.29% and 13.89% to settle at 8.79% and 8.00% from 10.5% and 9.29% at the close by of the month respectively.

In its review, GTL reckoned that it is no surprise to see money market rates steep lower for the month considering N2.187 trillion worth of maturities in September.

Following two day meeting in September, the Federal Open market Committee (FOMC) cut its rates by 25 basis points for the second consecutive time this year to 1.75-2% baseline.

In light of the effect of global developments for the economic outlook as well as muffled inflation pressures, the Committee decided to lower the target range for the federal funds rate.

GTL said: “This is in line with our previous edition which indicated that recessionary pressure begins to brew in the U.S and its contagion effect would spiral around economies. Dim global economic growth, rising trade tensions and a minefield of geopolitical flashpoints are among the several risks the FOMC is seeking to outmanoeuvre”.

As the committee meets is expected to meet in October 29-30, market players anticipate a further rate cut by the FOMC in light of recent contraction in manufacturing activities, slower payroll growth, as well as treasury yields steeping lower.

By cutting rates, the Fed hopes to stimulate a slightly slowing U.S. economy before it’s too late to prevent a recession.

“In light of all these Nigeria has not been as attractive to foreign players in terms of foreign direct investment and foreign portfolio investments, we have seen capital importation decline as reported by the National Bureau Statistics (NBS) due to a plethora of headwinds which continues to linger in the socio-political climate of Nigeria.

“The black liquid volatility in the energy market escalated in September, an attack on oil facility of the de-facto supreme leader of OPEC, Saudi, and saw oil prices jump swifter than it has done in 30 years, rising by nearly 15%.

“Despite this, oil prices have not sustained estimated $60pb by the FGN, shoring troubles in Venezuela, an embargo on oil export in Iran as well as production cut by OPEC”, GTL stated.

In the energy market, there currently exist four things pressuring the market. GTL stated that it saw the International Energy Agency (IEA) revise lower its demand forecast oil from 1.4 million bpd to 1.1 million bpd.

To the firm, this cannot be secluded from recent manufacturing data released in the U.S which indicates a continual decline in manufacturing activities.

Meanwhile, the tension around the Gulf cannot be isolated from a recent swing in oil prices. Allegations have been made against Iran concerning bombings in Saudi, not to forget the fiasco between U.S and Iran.

Implementation of quota by OPEC has not been to par as expected. Russia has agreed to a production quota of 11.17 million bpd, which produced 11.25 million bpd, for the month of September likewise Iraq, thereby compounding the glut in the market in light of relaxed demand due to slow down in economies and the effect of continual trade protectionism.


A stronger inventory build in the U.S seem to trouble the energy market, however, as we approach refinery maintenance period, oil prices should find tailwinds as production tempers down in the U.S.

“Looking ahead, some of the factors are more likely to dominate the market than the other, albeit, we anticipate gloomy economic data will persist and the absence of optimistic fronts to ease trade tensions, oil prices shall soften, at best hover about this level.

“In October, we expect a buoyed liquidity in the system, over N2 trillion worth of OMO bills, N78.9 billion worth of FGN bonds and N47.6 billion of bill auctioned via PMA will mature.

“Hence, we anticipate a little above N2.135 trillion to hit the system in terms of maturing securities in the month”, GTL remarked.

The firm also noted that bond coupon payment on the 25-26 October to the ton of N59 billion is expected to elevate liquidity in the system. Read Also: Nigerian Banks Battle Liquidity Shortfall, Borrow from CBN Facility

“Consequently, we anticipate the treasury market (mostly bills) to be high demand driven for the month, thereby, pushing yields lower across all maturities, albeit, largely skewed towards the long end of the bills market as seen over time in the market.

“The Apex bank in a feat to curb inflationary pressure and mop up liquidity, albeit, offering bills at marginally flat yields”, GTL stated

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