Here’s what to expect from Nigeria’s money market ahead of OMO Auction

The Central Bank of Nigeria (CBN) offered N330 billion across three maturities in an Open Market Operation (OMO) Auction today, which comes at a time when the fixed income market in Nigeria is experiencing significant shifts in trading activities. Tunde Adama, Head of Trading at CITI Nigeria, joined CNBC Africa to discuss the recent developments shaping Nigeria's fixed income and Forex market. Adama highlighted that in the past week, the fixed income market has been bullish, with notable buying activity across the tenors in the bonds market. Following the CBN's introduction of measures restricting local investors from buying OMO bills, there has been a noticeable shift towards bonds as local investors increase their bond holdings. Adama mentioned that bonds have dropped off by an average of 100 to 150 basis points, depending on the curve observed. The recent NTB auction saw a significant drop in yields, with the one-year rate decreasing from 12.94% to 11.5%, indicating a 150 basis points drop The timing of the CBN's OMO restriction has raised questions about its impact on the market. Adama explained that the central bank's objective is two-fold: to lower interest rates to spur lending to the real sector while maintaining high yields to support the exchange rate. This has led to a bifurcation in the market, with transactions initially slowing down. However, market stakeholders are working to overcome operational challenges and ensure a smooth transition. Adama noted that while the market had seen interventions from the CBN over the past few months, the restriction on local investors in OMO auctions came as a surprise to many. The move aims to redirect investment towards equities and promote lending to stimulate economic growth, although it has impacted liquidity in the money market. Looking ahead, Adama predicts that T-bills will remain at lower yields compared to OMO bills, driving interest in the bond space as local investors seek alternative investments. He anticipates a 'new normal' in the market in the short term, with continued adjustments as participants adapt to the evolving regulatory landscape. In conclusion, the Nigerian fixed income market is witnessing a significant transformation following the CBN's OMO auction restrictions. While the market adjusts to the new policy environment, stakeholders are navigating the challenges and opportunities that lie ahead, paving the way for a potentially reshaped investment landscape in the country.