CBN's Policy on OMO to Depress T-Bills Yields in the Secondary Market


Monday, October 28, 2019 / 03:24PM / By Afrinvest Research/ Header Image Credit: Proshare


The Treasury Bills ("T-Bills") secondary market started on a bearish note last week as investors sold off their short term bills to take advantage of the long term OMO bills following the announcement of an OMO auction by the CBN on Monday. However, this was short lived as the bullish momentum resusitated on Thursday on the back of the CBN's policy that restricts individuals and local corporates, including non-bank financial institutions,  from investing in Open Market Operation ("OMO") bills at  the primary and secondary markets.


Consequently, activities in the T-Bills market were relatively bearish as investors sold off short term bills to take position in long term bills due to the new CBN policy on OMO. Average yield across all tenors advanced 38bps W-o-W to close at 12.8% from 12.4% recorded the previous week. Major sell-offs were recorded on the short and medium dated tenors, particularly, 21-Nov-19 (+202bps), 2-Jul-20 (+139bps) and 26-Mar-20 (+119bps) maturities despite inflows from FAAC disbursements to state and local governments (N341.0bn) and OMO maturities worth N338.5bn


At the first OMO auction, the CBN offered N100.0bn across the 94-Day, 185-Day and 353-Day instruments which received a total subscription of N300.3bn. The short and long tenor instruments were oversubscribed at 2.0x and 4.5x respectively while the medium tenor was undersubscribed at 0.3x. Nevertheless, the CBN   allotted a total of N270.0bn with the 94-day instrument receiving no sale. Stop rates also remained unchanged from previous auctions.


On Thursday however, the Apex bank offered N 350.0bn across the 105Day, 189 Day and 364 Day tenors, subsequently mopping up only N320.7bn against the total subscription of N383.9bn. The medium tenor bills were both undersubscribed at 0.2x and 0.4x respectively while the long tenor bill continued to enjoy the most interest at 1.4x. Hence, the stop rate on the 364 Day bill moderated slightly with that of the medium tenor bills unchanged.


Going into this week, the CBN is expected to roll-over a total of N132.5bn worth of maturing T-Bills at the Primary Market Auction on Wednesday. While we anticipate more clarity on the directives of the Apex bank, we expect to see increased demand in the T-Bills primary and secondary markets particularly from local investors and PFAs.


Please see details of this week’s Primary Market Auction below:





Offer Amount (N)




Last Stop Rate (%)




Expected Stop Rate Range (%)

10.30% - 10.50%




Furthermore, we expect OMO maturities worth N308.7bn to hit the system thereby bolstering system liquidity (c.N376.7bn long as at Friday). Investors are advised to trade cautiously and position in T-Bills with attractive yields as the impact of the CBN's recently policy will likely pressure yields in the near term owing to high liquidity levels particularly from maturing OMO bills.


FGN Bonds Market Update: Bearish Performance in the Bonds Market as Average Yield Advances 11bps WoW 

In line with our expectations, activities in the Bonds market last week was relatively bearish as investors sold off their positions ahead of the Bond Auction that held on Wednesday. Consequently, average yield across all tenors gained 11bps W-o-W to settle at 14.0% on Friday. Major sell-offs were recorded on the short end of the yield curve particularly the 15-Nov-19 (+214bps), 13-Dec-19 (+140bps) and 17-Jan-20 (+51bps) maturities.


At the bond auction, the Debt Management Office ("DMO") offered N150.0bn across the APR-2023 (reopening), APR-2029 (reopening), and APR 2049 (reopening) bonds. The result showed a total subscription of N256.0bn, translating to a 1.7x bid-to-cover ratio (vs. 1.1x at the previous auction which held on 25-Sep-19). All tenors were oversubscribed highlighting the sustained trend in investors preference for longer term bonds with the 10year (reopening) enjoying the most interest.


Consequently, the DMO reviewed the stop rates across the 3 instruments downwards by 34bps, 20bps and 4bps respectively, while allotting more to the 10yr re-opening.


Find below a summary of the Bond Auction result:

Auction Date




Allotment/Issue Date

25- Oct-19

25- Oct-19

25- Oct-19

Term to maturity

4 Years,6 months

9 Years, 6 months

29 Years,6 months

Offer Amount (N)




Total Subscription (N)




Allotment (N)




Range of Bid Rates (%)

13.9900 - 14.6500

13.9900 - 15.0000

13.0000 - 15.0999

Stop rates (%)




Previous stop rates (%)




Bid-to-Cover Ratio




Allotment Ratio





This week, we expect more activities in the bond market as investors take advantage of attractive yields in the secondary market following the volume of lost bids at the primary auction. We also anticipate that the spill over effect of the CBN's policy will stimulate demand in the bonds market (especially bonds with 2-3 years "Time Till Maturity"-TTM) as investors seek other alternatives. Thus, investors are advised to cherry pick higher yielding instruments trading at a discount and attractive prices.


Proshare Nigeria Pvt. Ltd.

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Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.


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