CBN Offers Higher Rates on OMO Bills to Keep Hot Money Coming
Foreign portfolio investors and local deposit money banks increased bets on Nigerian OMO bills as the Apex Bank continues to offer juicy rates across tenors. Due to the elevated yield on OMO bills, hot money inflows from offshore investors continue to find their way into Nigeria, supporting the naira’s stability in the short-term horizon.
While there have been rate repricings on local treasury papers, the Central Bank of Nigeria (CBN) maintained elevated rates on OMO bills to keep foreign portfolio investors’ hot money coming, boosting US dollar liquidity in the forex market. Last week, the CBN floated an OMO auction where it offered higher rates on short-term instruments to keep foreign inflows coming into the country.
The CBN offered a spot rate of 25.99% pa on OMO securities with 124 days to maturity, higher than investors had expected and indicating a likelihood that the CBN is seeking to attract and keep offshore inflows for longer to sustain FX liquidity, Coronation Merchant Bank said in a research note.
At the OMO auction, the CBN offered N600.00 billion across 89-day and 124-day bills. Demand was overwhelmingly skewed to the 124-day paper, which saw subscriptions of N1.01 trillion against N300.00 billion offered, translating to a bid-to-offer ratio of 3.38x.
The CBN allotted N894.94 billion at a stop rate of 25.99%, nearly tripling the initial offer size. By contrast, the 89-day paper was undersubscribed, with just N2.25 billion compared to N300.00 billion on offer, with allotments matching subscriptions at 25.50%.
Analysts at Coronation said the divergent performance underscored investor preference for higher-yielding medium-dated bills in a tightening liquidity environment.
In the secondary market, fixed income securities analysts said limited activity occurred on the OMO curve, with slight interest in the 16-Dec, 17-Feb, and 7/14-Apr bills. The average yield contracted by 5 bps to 24.5% in the OMO segment. # CBN Offers Higher Rates on OMO Bills to Keep Hot Money Coming CBN Sells $166m to Banks, FX Forward Contracts Depreciate
