CBN’s Widened Access Boosts OMO Demand To N6.01trn Despite N600bn Offer

Trading in Open Market Operation (OMO) Bills surged in Nigeria’s fixed income market in the week ended August 14, accounting for the bulk of the N8.09 trillion traded as investors responded to the Central Bank of Nigeria’s decision to widen access to the instrument.

Data from the Fixed Income Dashboard showed that 2,022 transactions with a combined face value of N8.094 trillion were recorded across the fixed income market during the period, with OMO Bills alone accounting for 920 trades valued at N6.01 trillion.

The development came days after the CBN lifted restrictions on OMO participation, allowing non-bank financial institutions, corporates and retail investors to participate in the market through Deposit Money Banks.

The latest figures indicate the immediate significance of the policy change, as OMO Bills accounted for about 74 per cent of the total face value traded during the period and 46 per cent of all transactions recorded.

The OMO segment also recorded the highest number of participants, at 26, slightly ahead of Treasury Bills with 25, while FGN Bonds attracted 20. Sukuk recorded one participant.

Treasury Bills followed OMO Bills with 773 trades valued at N1.50 trillion, while FGN Bonds recorded 326 transactions worth N571.65 billion. Sukuk recorded the lowest activity, with three transactions valued at N12 million.

The figures point to the continued dominance of short-term government securities in the domestic fixed income market, with OMO Bills and Treasury Bills jointly accounting for 1,693 transactions and more than N7.51 trillion in face value.

Analysts said the surge in activity was consistent with expectations that the CBN’s decision to broaden the investor base for OMO securities would deepen the money market and improve liquidity.

Analysts at Cowry Asset Management described the CBN’s August 12 circular on the Review of Discount Window Restrictions and Open Market Operations Participation Framework as a liberalising and liquidity-friendly adjustment rather than a change in the direction of monetary policy.

According to the analysts, the reforms remove cross-market access penalties that had discouraged banks from using the Discount Window when they were also active in the foreign exchange market or primary bond and Treasury Bills auctions.

They added that the reopening of tenored repo operations and the expansion of the eligible investor base for OMO securities were particularly significant developments for the financial markets.

“In our view, the reform is a liberalising, liquidity-friendly adjustment rather than a policy pivot,” the analysts said. They noted that the changes would support money market depth and marginally improve system liquidity management, while potentially moderating OMO yields as the investor base expands.

Cowry Asset Management analysts, however, pointed out that the CBN retained the same day exclusion between access to the Standing Lending Facility and OMO participation, preserving what it described as the regulator’s core sterilisation discipline.

Similarly, Analysts at FBNQuest said the reforms should improve market liquidity, strengthen monetary policy transmission, and deepen participation in the fixed-income market. According to the analysts, the measures were likely to increase activity across the money and fixed income markets while signalling growing confidence in foreign exchange market stability, reserve adequacy and broader market conditions.

“The reforms should improve market liquidity, strengthen monetary policy transmission, and deepen participation in the fixed income market,” FBNQuest analysts stated.

They, however, warned that broader investor participation could accelerate yield compression over time, potentially reducing treasury income opportunities for banks and moderating the carry attractiveness of naira assets.

According to the analysts, the broadening of OMO participation was the most impactful aspect of the reforms because individuals, corporates and non-bank financial institutions can now access OMO securities through Deposit Money Banks.

They said the measure would expand the investor base, increase demand for short dated securities and place downward pressure on OMO clearing yields over time.

However, the CBN retained discretion over the volume, tenor and frequency of OMO issuances, meaning the regulator will continue to have significant influence over yield outcomes. The fixed income dashboard showed that OMO Bills recorded closing yields of 21.50 per cent at the shorter tenor and 20.79 per cent at the one-year tenor.

Treasury Bills recorded closing yields of 18.09 per cent and 20.91 per cent across the two tenors displayed, while weighted average yields stood at 16.59 per cent and 20.91 per cent, respectively. The FGN Bond market also recorded mixed yields across the curve, with closing yields ranging from 17.05 per cent at the one-year tenor to 14.83 per cent at the 27 year tenor

Closing yields stood at 16.40 per cent at three years, 16.23 per cent at four years and 16.50 per cent at five years. The yield rose to 17.25 per cent at six years, 17.38 per cent at seven years, 17.30 per cent at eight years and 17.75 per cent at nine years.