For the month of Nov-19, overall system liquidity remained elevated, as the size of maturing funds – from Nigerian Treasury Bills (NTB), Open Market Operation (OMO) bills, FAAC allocation, and FX retail refunds – outweighed outflows from NTB, OMO, FX and Bond auctions. Also, with local individuals and corporates barred from participating at the primary and secondary OMO market, available outlets were limited. As such, O/N & OBB rates fell to an average of 4.1%, from 5.0% in Oct-19.
In terms of primary market activities, the CBN only mopped up 49.4% (N767.2bn) of the N1.6tn OMO maturities that hit the system during the period. This was as maturities belonging to the class of unqualified investors were not rolled-over and frequency of OMO auction dropped to three (vs. six in Oct-19). As a result, heavy demand filtered into the NTB primary market, with stop rates crashing significantly to 6.5% on 91-day, 7.2% on 182-day and 8.4% on the 364-day. Also, the FMDQ successfully differentiated between OMO and NTB, which showed a bullish run in the secondary NTB market, as average yields declined to 7.3%, while OMO bills averaged 13.9%, vs 12.7% in Oct19 (OMO and NTB bills together).
Looking into Dec-19, we expect the direction of yields to remain largely dependent on the available liquidity in the system. Notably, with N776.3bn OMO maturities lined up in Dec-19 and bearing in mind the CBN ban on local corporates & individuals, we expect yields to moderate further, albeit at a slower rate as players look to other high-yielding naira assets (Bonds, Equities and Alternative Assets).
United Capital Plc Research