The Central Bank of Nigeria (CBN) received massive subscriptions for its Open Market Operations (OMO) bills in September, totaling N12.14 trillion across two auctions held on September 24 and 29. This was against N3.4 trillion offered, with the apex bank ultimately allotting about N6.94 trillion. The strong demand came after the Monetary Policy Committee (MPC) cut the Monetary Policy Rate (MPR) by 350 basis points to 23 per cent.
The CBN's OMO auctions saw significant investor appetite, with subscriptions reaching 3.57 times the amount offered. At the September 24 auction, the CBN offered N900 billion through 152-day and 180-day instruments but received N5.741 trillion in bids. Five days later, investors submitted another N6.399 trillion against N2.5 trillion offered across 147-day, 182-day, and 266-day securities.
Despite the heavy subscriptions, yields continued to moderate. The 180-day instrument attracted N3.883 trillion against N450 billion offered on September 24, representing about 8.63 times the offer. On September 29, the 266-day instrument attracted N4.543 trillion, accounting for about 71 per cent of total subscriptions that day.
Experts attribute the strong demand for OMO bills to relatively high returns, naira stability, broader market participation, and excess liquidity in the financial system. Ayokunle Olubunmi, Head of Financial Institutions' Rating at Agusto and Co, noted that the expansion of participation in the OMO market was a key factor driving demand for the securities.
Olubunmi identified substantial liquidity still circulating in the economy as another major factor contributing to the strong demand. He explained that funds associated with the Federal Government's previous Ways and Means financing had entered the economy, contributing to the pool of liquidity that the CBN is now seeking to absorb.
The high demand for OMO bills is broadly positive for the financial system, providing the CBN with an effective tool for managing excess liquidity. Olubunmi expects liquidity management to remain prominent in the coming months, particularly as Nigeria approaches the election period.
David Adonri, Chief Executive Officer of Highcap Securities Limited, said the resilience of demand reflected the continued attractiveness of Nigerian fixed-income assets. He noted that OMO yields of 17 per cent and above remained attractive to domestic and foreign investors despite the reduction in the MPR.
Key points
- The CBN received N12.14 trillion in subscriptions for OMO bills in September.
- Strong demand for OMO bills is attributed to high returns, naira stability, and excess liquidity.
- The CBN's OMO auctions provide an effective tool for managing excess liquidity in the financial system.
