The Central Bank of Nigeria’s Open Market Operations (OMO) auction saw poor demand on Friday despite offering a stop rate of 21.69 percent, suggesting the market is pushing back against the current rate environment and the central bank’s pricing.

The auction, which was carried out on Friday, October 31, offered N300 billion across a 46-day bill and a 60-day bill. The auction ended with a low total sale of N1.11 billion, despite a total offer of N600 billion and subscriptions of N359.28 billion at a stop rate of 21.69 percent.

Olaolu Boboye, SSA economist at CardinalStone said that the recent auction size suggests that the CBN does not want to sell long tenor bills because of the rollover risk.

The 40-day Bill, the shorter tenor, received only N74.10 billion in subscriptions; however saw no sale, with a Nil stop rate, indicating the bids received were likely too far from the bank’s acceptable price.

The 60-day bill longer tenor, also witnessed weak subscription of N285.18 billion was still less than the N300 billion offered.

Analysts at Rhodium Capital said that with investors demanding yields as high as 24.99 percent for such short tenors, the CBN appeared reluctant to fill bids at chosen elevated rates. The introduction of 46-day and 60-day bills, among the shortest OMO maturities in recent months, also influenced the market’s pricing behaviour, as participants sought a premium to justify exposure to ultra-short paper.

“Overall, the auction outcome suggests the operation was more tactical than driven by funding needs. Given the decent liquidity backdrop and expected maturities in the coming days, investors may be positioning for another auction with more attractive tenors and potentially better yields. Unless the CBN adjusts its rate expectations or tenor structure, demand at the short end may remain selective,” they said.

Matilda Adefalujo, fixed income analyst at Meristem, suggests that the CBN is trying to achieve this using OMO as a proper liquidity mop-up too, not just an investment instrument.

Liquidity has been really high in the system; it was N4 trillion before the federal government bond auction on Monday, and now N2 trillion as of Thursday. (Business Day)