OMO Auction Flops as Foreign Investors Shun CBN Offer
The open market operation (OMO) bill auction conducted by the Central Bank of Nigeria (CBN) on Wednesday flopped as foreign portfolio investors’ showed little interest in the apex bank’s offers in the primary market.
Nigeria has seen huge FX inflows from foreign investors positioning in OMO, Treasury bills instruments in recent times due to its high spot rate pricing. The latest data showed that the inflation rate surged to 34.19%, adding another layer of pressure to already depressing macroeconomic indicators.
The country’s growth expectation was also slashed by the International Monetary Fund, while the naira continues to struggle in the forex market. Investors are seeking inflation protected investment options to protect wealth, but the pattern showed that the apex bank has slowed down spot rate pricing at the main auctions.
Authorised dealers, banks, and other market participants N39 billion subscriptions at the auction were far below the amount the Apex Bank offered for sales on Wednesday.
At the OMO auction, the CBN offered N150.00 billion across 3 tenors, the standard maturities. However, demand was very weak as total subscriptions stood at N39.00 billion, only occurring at the long end, according to CardinalStone Partners Limited.
The investment firm said in an email note sent to investors that the OMO auction was concluded without any sale. Following this, market participants redirected funds toward Nigerian Treasury bills in the secondary market.
Thus, the average mid-rate across the benchmark Nigerian Treasury bills papers declined by 9 basis points to 22.09%. Analysts expect CBN to continue its indirect intervention in the FX market, using OMO Bills sales to address liquidity issues.
In June, the CBN sold ₦1.77 trillion in OMO auctions. The Apex Bank conducted four auctions in June. The first two OMO auctions witnessed oversubscription at ₦1.51 trillion despite ₦750.00 billion offered while the CBN sold ₦1.50 trillion.
The CBN had no sale at the third auction in June while selling ₦264.33 billion at the final auction in the month. Weak demand for OMO bills in the primary market signals a negative perception about naira assets.
At the same time, liquidity levels in the financial system remained depressed, causing funding rates to climb further. Foreign and local investors weighted the impacts of inflation on their portfolio returns, which triggered risk off sentiment. Oil Dips over Uncertainties in Crude Demand, Supply
