The Central Bank of Nigeria's Open Market Operations (OMO) auction on Friday saw low demand despite offering a stop rate of 21.69 per cent, suggesting the market is pushing against the current rate environment and the central bank's pricing.
The auction, which held on Friday, October 31, saw N300 billion offered in 46-day bills and 60-day bills. Despite a total offer of N600 billion and subscription of N359.28 billion at a stop rate of 21.69 per cent, the auction ended with a low total sale of N1.11 billion.
Olaolu Boboye, SSA economist at Cardinalstone, said the recent auction size suggests the CBN does not want to sell long-term bills due to rollover risk.
The 40-day bill, the shorter tenor, received only N74.10 billion subscription; However no sales took place, with a zero stop rate, indicating that the bids received were far from the bank's acceptable price.
The 60-day bill long term, also witnessed weak subscription of N285.18 billion, which was still below the proposed N300 billion.
Analysts at Rhodium Capital said with investors demanding yields as high as 24.99 percent for such short tenures, the CBN appeared reluctant to field bids at the higher rates it chose. The introduction of 46-day and 60-day bills, among the shortest OMO maturities, in recent months also impacted market pricing behaviour, as participants sought a premium to justify the performance of ultra-short paper.
“Overall, the auction outcome suggests that the operation was more strategic than driven by funding needs. Given the good liquidity backdrop and expected maturities in the coming days, investors may be positioning for another auction with more attractive tenors and potentially better yields. Unless the CBN adjusts its rate expectations or term structure, demand may remain selective in the short term,” he said.
Matilda Adefalujo, fixed income analyst at Meristem, suggests that the CBN is trying to achieve this by using OMOs not just as an investment instrument but also as a proper liquidity repository.
Liquidity in the system is really very high; It was N4 trillion before the federal government bond auction on Monday, and now stands at N2 trillion as of Thursday.
