Nigeria’s financial system has experienced a notable turnaround in liquidity, shifting from a deficit position to a surplus as inflows exceeded outflows. The system’s liquidity rebounded from a deficit of N207.6 billion in October to a surplus of N518.9 billion in November. This recovery was driven by inflows from primary market repayments (N1.3 trillion), Open Market Operation (OMO) repayments (N7.3 billion), and the Standing Lending Facility (SLF) of N8.3 trillion. These inflows surpassed outflows from OMO sales (N1.5 trillion), Primary Market Auctions (PMAs) worth N17 trillion, and the Standing Deposit Facility (SDF) of N3.1 trillion. Despite this liquidity improvement, the Open Buy Back (OPR) and Overnight (OVN) rates rose by 8.1 percentage points (ppts) and 8.5 ppts month-on-month (m/m) to 29.3 percent and 29.9 percent, respectively.
In the primary market, the Central Bank of Nigeria (CBN) offered an OMO of N300.0 billion and conducted two NT-bill auctions totaling N1.1 trillion in November. At the OMO auction, the CBN offered N300.0 billion across 91-, 182-, and 364-day notes. However, investor interest was concentrated at the long end of the curve, with a bid-to-offer ratio of 5.8x (offer: N250.0 billion, subscription/sales: N1.5 trillion). Short- and mid-dated instruments recorded no interest. The stop rate for the OMO auction remained at 24.3 percent, unchanged from the previous month.
Meanwhile, at the NT-bill auctions, instruments worth N1.1 trillion were offered cumulatively, with total subscriptions reaching N1.9 trillion and sales amounting to N1.3 trillion. Similar to the OMO auctions, investor interest was higher at the long end of the curve, reflected in a bid-to-offer ratio of 1.7x. Short- and mid-dated notes saw lower demand, with bid-to-offer ratios of 0.8x and 0.7x, respectively. The stop rates for the 91-day, 182-day, and 364-day bills cleared at higher levels of 18.0 percent, 18.5 percent, and 23.5 percent, respectively, compared to 17.0 percent, 17.5 percent, and 19.9 percent in the previous month.
According to analysts at Afrinvest (West) Africa Limited, “We attribute the skewness of investor interest to instruments with longer maturities to the current macroeconomic headwind, especially the unabating inflation.”
In the secondary market, average yields expanded by 2.1 ppts m/m to 26.2 percent, driven by sell-pressure at the short and long ends of the curve. Yields rose by 4.3 ppts and 3.1 ppts m/m at the short and long ends, reaching 26.2 percent and 27.1 percent, respectively. However, buy interest in the mid-section of the curve caused yields to decline by 1.1 ppts to 25.4 percent.
In December, system liquidity is expected to tighten as the CBN conducts Federal Government of Nigeria (FGN) bond auctions worth N200.0 billion and discretionary T-bill auctions to absorb inflows from anticipated OMO and FGN bond repayments of N405.0 billion. Additionally, investor sentiment is likely to be influenced by the 25 basis points rate hike announced at the November Monetary Policy Committee meeting, sustaining the negative momentum in the market.
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