At the Central Bank of Nigeria’s (CBN) main market auction, the spot rate on one-year open market operations (OMO) bills issued to investors in fixed interest instruments and other market players cleared at 21.50%.based on the outcomes of the auction.
The trend seen earlier in the year to encourage FX inflows into the economy has been reversed as the apex bank has begun lowering bank rates on the monetary authority’s instrument. The interest yield on naira assets has remained negative due to the pace of inflation.
In Q1, international investors were drawn to the fixed income market due to elevated returns, as the CBN provided higher interest rates to attract hot money. But spot rates have fallen across the board, and OMO bill auctions seem to have put foreign investors looking for bigger profits on the defensive.
At the auction, the apex bank offered N500 billion worth of OMO bills across all standard maturities for subscription. The auction performed unimpressively, with lower demand for the instruments.
The OMO bill auction was significantly undersubscribed due to a low appetite for naira assets. Foreign investors have continued to sell down naira-denominated assets on account of elevated global interest rates.
The financial market has seen funds move to safe havens as market consensus suggests that the Federal Reserve would delay interest rate hikes due to weaker-than-expected economic performance following the latest unemployment data.
The auction results indicated low demand for the offered instruments, with bid-to-offer and bid-to-cover both closing negative at 0.57x and 0.52x, respectively, CardinalStone Securities Limited said in its market update.
The total subscription received at the auction for short-dated OMO bills was N20.5 billion, and the same bid was considered successful at 18.99%, down from 19% in the previous auction. CBN also offered N75 billion worth of OMO bills, but subscriptions came in strongly lower as well.
Traders said stop rates for the 99-day OMO bills settled at 18.99%, while the 183-day was sold at a spot rate of 19.48%. The auction results showed that 365-day instruments closed at 21.50%.
