MONEY MARKET: N2.25trn OMO Maturities Loom as Liquidity Swells

Nigeria’s money market entered the final week of August with liquidity still firmly in surplus, even as the Central Bank of Nigeria (CBN) stepped up its efforts to absorb excess cash through Open Market Operations (OMO) and Treasury bill sales.

The overnight rate rose marginally by eight basis points week-on-week to 22.2 per cent, reflecting the impact of fresh liquidity withdrawals through OMO and net Treasury Bills Primary Market Auction debits.

The CBN absorbed N4.72 trillion through OMO operations during the week, while net NTB debits amounted to N333.65 billion. These outflows were partly offset by N2.32 trillion in OMO maturities, leaving the banking system with substantial liquidity despite the apex bank’s sterilisation efforts.

The depth of the surplus was reflected in the amount banks placed with the CBN through the Standing Deposit Facility. Average SDF placements rose to N4.77 trillion during the week from N3.52 trillion previously, indicating that banks continued to hold significant excess cash with limited immediate deployment opportunities.

As a result, average system liquidity increased to a net long position of N4.26 trillion, compared with N3.95 trillion in the previous week.

The liquidity position is expected to remain supportive next week, particularly with another N2.25 trillion in OMO maturities scheduled to enter the system. The extent to which that liquidity translates into lower money market rates will depend largely on the CBN’s response.

Additional OMO issuances could absorb part of the incoming funds and keep money market rates broadly around current levels. A more aggressive sterilisation programme, however, could put renewed upward pressure on rates.

Treasury Bills

The Treasury bills market, meanwhile, remained under pressure during the week as investors adjusted their positions around primary market auctions.

Average yields across Treasury bill instruments rose by 10 basis points to 19.3 per cent. The movement was driven mainly by the NTB segment, where average secondary market yields increased by 35 basis points to 18.9 per cent.

Investors appeared to unwind some secondary market positions ahead of the NTB Primary Market Auction, redirecting funds towards the primary market where attractive stop rates and the opportunity to secure new instruments supported demand.

The OMO segment moved in the opposite direction. Average secondary market OMO yields declined by 44 basis points to 20.4 per cent as excess demand from the OMO auctions spilled into secondary market trading.

The scale of investor appetite was evident at Wednesday’s NTB auction conducted by the Debt Management Office. The DMO offered N700 billion across the 91-day, 182-day and 364-day tenors, yet attracted total subscriptions of N3.79 trillion.

The strong demand allowed the DMO to allot N762.89 billion.

The 364-day stop rate fell by 44 basis points to 17.15 per cent, while stop rates on the 91-day and 182-day bills were unchanged at 16.30 per cent and 16.50 per cent respectively.

The CBN also conducted two OMO auctions during the week, drawing substantial demand from investors seeking to deploy excess liquidity into higher-yielding instruments.

At Wednesday’s auction, the CBN offered N600 billion in OMO bills and received N4.26 trillion in subscriptions. It ultimately allotted N2.80 trillion, with stop rates settling at 19.90 per cent for the 97-day tenor and 19.65 per cent for the 132-day tenor.

Demand remained strong at Thursday’s auction. The CBN offered another N500 billion, attracting N4.36 trillion in bids and allotting N1.93 trillion. Stop rates closed at 19.85 per cent for the 96-day tenor and 19.32 per cent for the 152-day tenor.

The divergence between NTB and OMO yields highlights the growing importance of relative returns in determining where investors deploy liquidity. With OMO instruments offering comparatively attractive yields, demand for NTBs could remain uneven even as overall liquidity conditions remain favourable.

The Treasury bills secondary market is therefore expected to retain a broadly bullish bias next week, supported by resilient domestic demand and ample system liquidity. Yield movements in the NTB segment could nevertheless remain volatile, particularly where investors switch between NTBs and OMO instruments in search of better returns.

The supply pipeline will also remain important, with the DMO scheduled to offer N700 billion in Treasury bills at its next primary auction on Wednesday, September 2.

FGN Bonds

The FGN bond market was more subdued, with average yields rising by two basis points to 16.8 per cent as investors adopted a cautious approach amid increased activity in the OMO market.

The overall movement, however, masked different trends across the yield curve.

Average yields at the mid and long segments declined by three and one basis point respectively, supported by demand for selected benchmark bonds. The April 2029 bond recorded a 20-basis-point decline in yield, while the June 2038 bond fell by four basis points.

The short end of the curve faced stronger selling pressure, with average yields rising by 22 basis points. The sharpest movement came from the March 2027 bond, whose yield increased by 181 basis points.

The contrasting movements suggest that investors remained selective rather than broadly exiting the bond market. Demand persisted for some medium- and long-dated securities even as short-dated instruments came under significant pressure.

Over the medium term, bond yields are expected to remain elevated as the Federal Government continues to face sizeable financing and borrowing requirements. Improving demand from both offshore and domestic investors could, however, provide some support to the market in the near term.