In an effort to manage excess liquidity from maturing instruments, the Central Bank of Nigeria (CBN) revised the rates on its open market operations (OMO) bills, offering ₦600 billion in a mid-tenor auction early this week.
The domestic financial system received an inflow of ₦984.22 billion from maturing OMO bills on Tuesday. To sterilize this liquidity and maintain tight monetary conditions, the apex bank rolled out a fresh auction targeted at eligible financial market participants.
Without the fresh issuance of OMO instruments, the financial system could have experienced excessive liquidity, potentially disrupting interest rate stability. The offered ₦600 billion was divided into two tenor segments: 106-day and 169-day maturity OMO bills.
Strong investor appetite was evident, enabling the CBN to lower the spot rate for the 106-day maturity while increasing the rate on the 169-day paper. This move aligns with the bank’s strategy to cut the cost of managing its balance sheet by gradually easing rates on shorter-term instruments.
Investors submitted bids totalling ₦1.14 trillion across the two tenors, although the CBN allotted ₦1.13 trillion. The spot rate on the 106-day maturity paper dropped by 18 basis points, closing at 23.59%, while the 169-day maturity bill saw its spot rate increase by 52 basis points to 24.50%.
Following the auction, secondary market activity reflected stable interest. Traders from Erad Partners Limited noted that the 11 Nov OMO bill was quoted at 24.35/24.20 in the open market.
The prior week saw a bullish trend across OMO maturities, with the average yield on the curve declining by 38 basis points to settle at 26.51% week-on-week. Yield contractions were seen across all tenors: short-term yields decreased by 20 bps to 27.59%, mid-tenor yields dropped 44 bps to 26.35%, and long-dated papers saw a 39 bps dip, closing at 26.37%.
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