The secondary segment of the Nigerian fixed income market was bullish last week following the large amount of money market participants anticipated to invest, but went unsuccessful at the Open Market Operation (OMO) auction conducted by the Central Bank of Nigeria (CBN). Investors’ bids were almost three times more than CBN’s offer.
Buying interest was witnessed along the short and long-end of the Nigerian treasury bills (T-Bills) curve on Friday, pushing average discount rate on the instruments down by 12 basis points to 11.75 percent. Also, the average yield on benchmark bonds declined by 3 basis points to 14.26 percent after the day’s trading as investors largely sought after the long-dated instruments.
More than N701 billion worth of lost bids could not be met at the OMO auction last Thursday as investors subscribed N1.12 trillion but the apex bank could only sell OMO bills worth N420.6 billion. In spite of the high subscription level, spot rates on the auction were largely unchanged at 11.59 percent for 91-day, 11.79 percent for 184-day and 13.35 percent for 364-day bills.
The auction was conducted in a bid to mop up the excess amount of money which had risen to N680.72 billion following treasury and OMO maturities valued at N133.97 billion and N463.98 billion that hit the market, respectively.
The financial regulator would probably conduct a rollover OMO auction – if history is any guide – to mitigate the effect of the expected N315.99 billion worth of OMO maturity inflows into the market on Thursday, October 24.
“We maintain a cautious outlook in the interim as increased supply could push secondary market rates higher,” analysts at Zedcrest Capital said in their T-Bills forecast. “With combined inflows of c.N565 billion from OMO and FGN Bond maturities, the CBN may look to ramp up its mop-up activities with multiple OMO auction” this week.
The Debt Management Office (DMO) is also expected to reopen the 5-year, 10-year and 30-year bond auction on Wednesday, October 23, according to an offer circular published on its website. The debt agency will offer N50 billion each amounting to N150 billion across the three tenors.
“Marginal rates are expected to close slightly lower compared to the previous level to reflect the recent downward repricing of yields in the secondary market,” analysts at Lagos-based investment house, Chapel Hill Denham, said in a note to clients.
Zedrest analyst maintained that the bullish run witnessed at the bond market last week might slow down into this week as investors assess the prospect of supply from this week’s bond auction. They noted the offer amount of N150 billion at the auction might not be sufficient to meet rollover demand from investors receiving bond maturities of cN234 billion.
