Investors pick new brides in bonds following OMO ban

By Moses Obajemu

Nigerian investors hitherto playing in the OMO segment of the fixed income securities market have shifted their interest to the bonds market, leading to a strong bullish sentiment in the that end of the market. Similarly, the migration to the bonds market led the bearish performance of the previous week to  come to a halt.

The movement to the bonds market came on the heels of  the Central Bank of Nigeria’s (CBN) recent move to restrict individuals, local corporates and non-bank financial institutions from participating in the primary and secondary markets for OMO securities.

Business a.m gathered that because of the strong bullish sentiment in the bonds market., average yield in the domestic market trended lower by 113bps to print at 12.87%. At the beginning of the week, average yield slumped 20bps and this was sustained on Tuesday and Wednesday as average yield fell by 22bps and 39bps respectively. On Thursday, average yield also dropped 33bps while the bullish streak was ended on Friday as average yield rose marginally by 1bp.

The medium-term instruments enjoyed the most buying interest as yields declined 166bps while yields on short and long-term instruments fell 44bps and 111bps respectively.

Analysts at Afrinvest Limited said they expect the bullish performance in the bonds market to be sustained due to limited investment opportunities.

Similarly, the CBN’s restrictions in the OMO (primary) market, led to  a healthy demand for T-bills, which resulted in a bullish performance in the secondary market as rates dipped 20bps W-o-W to 12.0%. The 91-day instrument enjoyed the most buying interest with rates trimming 40bps.

Also, the rates on the 182- day instrument fell 10bps while the 364- day instrument closed flat. In the coming week, this bullish run is expected to be sustained in the secondary market as investors maintain interest due to recent regulatory action.

Financial analysts have said that the Central Bank of Nigeria (CBN) was trying to force people with cash to embrace fixed deposits in banks rather than fixed income securities with higher yields, so as to increase the quantum of loanable funds at the disposal of banks to help achieve its goal of greater lending to the real sector.

For this reason, they said these are exciting times for the Nigerian financial market as they anticipate how the different players in the financial market will react to the OMO restriction and other policies by the CBN.

On Wednesday, October 23rd, 2019, the Central Bank issued a new circular that once again spooked the financial markets to its core. The CBN announced the exclusion of non-bank locals (individuals and corporates) from participation in its Open Market Operations (OMO) at both the primary and secondary market.

In the aftermath of this policy, the natural alternative investment opportunity for investors is the Treasury bills market, given that they are similar in tenor and have been largely interchangeable in recent years, however, at the auction which took place last week, the CBN rejected a whopping N432 billion in treasury bills bid, accepting about N132.5 billion against total bids of N565.5 billion.

This move by the CBN only shows that the apex bank is forcing investors to look towards fixed deposit with their extra liquidity.