N16bn maturing OMO bills not enough to improve inter-bank squeezed liquidity
By The N16 billion maturing Open Market Operation (OMO) bills expected to hit the financial market this week is seen to make no significant impact on the already squeezed inter-bank market liquidity.
The liquidity position of the market was N70.1 billion on Monday last week. The system liquidity improved to N402.2bn on Thursday driven by inflows from matured NT-Bills and OMO instruments worth N88.9bn and N157.2bn respectively which boosted buying interest, according to a report by Afrinvest Securities Limited.
Consequently, average yield across all tenors dipped 15bps W-o-W to close at 2.1% on Friday. Investors particularly demanded for the medium and long-term bills, with yields on the 11-Feb-21, 28-Jan-21 and 14-Jan-21 maturities declining by 64bps, 63bps and 60bps W-o-W respectively.
The Central Bank of Nigeria (CBN) mopped a total of N100 billion, leaving the current liquidity position of the market to about N302.2 billion, which would rise to N318.2 billion when the new OMO bills hit the market this week.
“The interbank market liquidity is tight at the moment and the OMO maturity is of no significant impact in the market,” said Ayodele Akinwunmi, relationship manager, corporate banking at FSDH Merchant Bank Limited.
He said Interbank overnight rate is in the region of 20%. “Market may remain tight until there is a significant maturity in the market,” Akinwunmi said.
Reports by Afrinvest Securities Limited and FSDH research stated that OMO maturities worth N16.00 billion are expected to support the system liquidity.
“We also expect sustained buying interests in the secondary market, due to the unfilled bids from last week’s PMA,” analysts at Afrinvest said.
The firm advised Investors to take advantage of the relatively attractive bills along the curve while also remaining alert for commercial paper offerings that might be announced.
Nova Merchant Bank Limited is seeking to raise up to N10.0bn 7-year Fixed Rate Subordinated unsecured bonds via a funding vehicle- NOVAMBL INVESTMENTS SPV PLC under its N50.0bn debt issuance programme and this is an investment opportunity for Investors.
Last week, the CBN offered and sold N100.0bn worth of OMO bills on Thursday across the short, medium- and long-term maturities with a combined bid-to-cover ratio of 1.8x (N177.4bn total subscription vs. N100.0bn total offer). Stop rates across all tenors remained unchanged.
At the Primary Market Auction (PMA), the apex bank offered a total of N88.9bn with a total subscription of N330.7bn. All tenors were oversubscribed with the most demand recorded on the 364-day tenor which had a 4.2x bid-to-cover ratio. Consequently, stop rates across the 91-, 182- and 364-day instruments closed lower at 1.8%, 1.9% and 3.4% respectively.
Afrinvest analysts believe that demand, albeit mild, will be witnessed as local investors continue to drive performance in the domestic debt market. “We also anticipate the release of Q3:2020 bond issuance calendar by the Debt Management Office (DMO).
“Our recommendation is for investors to cherry pick attractive instruments across the curve. Investors can also consider available corporate bond issuances such as the 7-year Nova Merchant Bank Limited Bond offer closing this week,” the analysts said.