Investors Get 21.50% Interest Rate on OMO Bills
The spot rate on one year open market operations (OMO) bills sold to fixed interest securities investors and other market participants at the Central Bank of Nigeria (CBN) primary market auction cleared at 21.50%.according to auction results.
The apex bank has started cutting bank rates on the monetary authority’s instrument, reversing the trend witnessed earlier in the year to drive FX inflows into the economy. The inflation rate has kept the interest yield on naira assets negative.
Elevated yields in the fixed income market attracted foreign investors in Q1 as the CBN pampered hot money with higher interest rates. However, the spot rates have slowed down across the Treasury,, and OMO bills auctions appeared to have triggered risk-off sentiment for foreign investors seeking higher returns in the local debt market.
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%.
