For us, a number of factors are pointing towards reduced system liquidity in H2-2020. First, on the domestic front, net inflows of funds from maturing OMO bills belonging to local players will begin to wane from Q3-2020.
We recall that the decision taken by CBN to stop OMO sales to locals was taken towards the
end of Oct-2019. Based on CBN data, from Dec-2019, the amount of OMO bill holdings belonging to local non-bank corporates has dropped significantly, to N3.9tn as at the end of Apr2020.
This means that from Apr2020 to the end of Oct-2020, all holdings in the hand of local non-bank corporates (N3.9tn as at Apr-2020) is expected to be exhausted. Also, by implication and accounting for time passage, a larger proportion of portfolio holdings on OMO bills will be in the hands of FPIs and Banks in Q4-2020, with these set of investors calling the shots at the OMO market.
Also, inflows from FAAC are likely to come in lower than the previous year, as the
government’s revenue takes a hit from the lower oil prices. Overall, we expect inflows from domestic sources to track lower in H2- 2020, strengthening the case for a potential increase in yields compared to H1-2020.
United Capital Research