OMO yield premium draws N4.93tn investor demand as CBN allots N2.60tn
By Aboki Forex —
Investors placed N4.93tn worth of bids for the Central Bank of Nigeria’s Open Market Operations bills on Thursday, more than eight times the N600bn the apex bank initially offered. The CBN allotted N2.60tn, substantially above the original offer, according to auction data published by the central bank.
The strong subscription underscores the growing attraction of OMO bills relative to comparable Treasury bills, with investors willing to commit substantial funds to securities offering returns around 20 per cent.
103-day and 138-day breakdown
The 103-day OMO bill, which matures on 24 November, attracted N1.27tn in subscriptions against an offer of N300bn. The CBN allotted N450bn at a stop rate of 20.39 per cent, with successful bids ranging from 19.90 per cent to 20.46 per cent.
Demand was significantly stronger for the 138-day instrument, which matures on 29 December. It received N3.66tn in bids, more than 12 times the N300bn offered. The CBN allotted N2.15tn of the 138-day paper at a stop rate of 20.01 per cent, with a true yield of 21.66 per cent.
Wide premium over Treasury bills
The demand is particularly significant because OMO bills are offering a sizeable premium over comparable instruments. The 103-day OMO bill cleared at 20.39 per cent, compared with about 16.30 per cent for the 91-day Treasury bill, a yield difference of roughly 409 basis points.
Similarly, the 138-day OMO bill’s 20.01 per cent stop rate was about 351 basis points above the 16.50 per cent stop rate on the 182-day Treasury bill. This differential is creating a strong incentive for investors to favour OMO instruments when allocating short-term funds.
Pressure on banks and liquidity management
The sustained demand could also have implications for banks’ deposit pricing, as investors gain access to OMO bills through their banks. “With investors able to secure returns around 20 per cent from CBN instruments, banks may face greater pressure to offer more competitive rates on deposits and other savings products to retain liquidity,” said an emerging markets and fixed income analyst, Ike Ibeabuchi.
The latest auction comes against the backdrop of heavy liquidity management by the CBN. The apex bank injected a net N5.21tn into the banking system in the week preceding the auction, including an N2.48tn OMO repayment on 11 August. It subsequently returned to the market with another large OMO sale.
The CBN had also mopped up N4.69tn through OMO auctions conducted on 3 and 4 August, while more than N7tn had been absorbed through OMO auctions in July, according to auction data and market reports.
What it means for the market
The continued appetite for OMO bills despite the scale of recent liquidity operations suggests that substantial funds remain available within the financial system and are seeking attractive short-term returns. As long as OMO yields remain significantly above Treasury bill rates, investors are likely to continue reassessing where to deploy short-term liquidity, potentially putting pressure on banks, money-market instruments and government securities to offer more competitive returns.