Nigeria: FPIs and Banks Invest Heavily in OMO Bills Amid Robust Market Demand

Nigerian banks and foreign portfolio investors (FPIs) collectively invested a substantial N1.6 trillion in Open Market Operation (OMO) bills during two primary market auctions conducted by the Central Bank of Nigeria (CBN) last week.

These auctions, organized by the CBN, attracted considerable interest from investors seeking short-term investment opportunities amidst prevailing high-interest rates. Analysts observed that the one-year maturity OMO bill garnered particular attention from investors, leading to significant investments due to its perceived value.

According to a report by Cordros Capital Limited, the first auction saw a total subscription of N891.46 billion, a marked increase from the N86.50 billion recorded in July. The CBN initially offered instruments worth N500 billion, significantly exceeding the N150 billion offered in July. Eventually, the central bank allotted N869.46 billion.

The breakdown of the offerings revealed allocations of N5 billion for the 92-day bill, N10 billion for the 176-day bill, and a substantial N854.46 billion for the 358-day bill. The stop rates for these bills were set at 18.5% for the 92-day OMO bills, 19.3% for the 176-day bills, and 21.89% for the 358-day bills, with the latter rate reflecting a marginal decrease of 2 basis points.

During the second auction, investor interest was overwhelmingly focused on the 1-year bill, with no demand for the 91-day bill. The total subscription for this auction amounted to N765 billion, while the CBN offered bills worth N1.85 trillion. Ultimately, the central bank allotted N758 billion for the 364-day bill, with the stop rate dropping by 2 basis points to 21.87%. No sales were made for the 91-day and 175-day bills.

In 2019, the CBN implemented a policy excluding non-bank locals, including individuals and corporates, from participating in OMO auctions in both the primary and secondary markets. As explained by CardinalStone Partners, this exclusion means that only Deposit Money Banks (DMBs) and Foreign Portfolio Investors (FPIs) can participate in OMOs, forcing non-bank financial institutions to shift their focus to Treasury bills and other investment alternatives.