Hedge funds and other yield-hungry investors are piling into Central Bank of Nigeria (CBN) Open Market Operations (OMO) bills, attracted by effective returns of more than 21 per cent despite a recent decline in the instruments’ nominal stop rates.
At the CBN’s latest auction held on August 26, investors submitted bids worth N4.26tn for OMO bills, more than four times the N1tn offered by the apex bank. The strong demand highlights the continued appetite for naira-denominated assets offering relatively attractive returns in the financial market.
The 132-day OMO bill attracted the biggest interest, with investors submitting N3.48tn in bids against an offer of N500bn. The 97-day instrument also recorded significant demand, receiving N783bn in subscriptions against the N500bn on offer. The CBN eventually allotted N2.18tn on the longer-dated bill and N613bn on the 97-day bill, bringing total allotment to N2.80tn.
Although the CBN reduced the stop rate on both instruments, their effective yields remained above 21 per cent. The 97-day bill cleared at 19.90 per cent, down from 20.39 per cent at the previous auction, with an effective yield of about 21.02 per cent. Meanwhile, the 132-day bill cleared at 19.65 per cent, compared with 20.01 per cent previously, while its effective yield stood at approximately 21.16 per cent.
The latest auction shows that investors remain willing to lock up funds for longer periods in pursuit of stronger returns. The scale of subscriptions and the CBN’s decision to allot N2.80tn—nearly three times the scheduled offer—also point to substantial naira liquidity in the financial system and continued demand for high-yielding government securities, even as nominal interest rates gradually ease.
source: punch
