On February 13, 2025, the Central Bank of Nigeria (CBN) held another Open Market Operation (OMO) auction, drawing many investors.
Subscriptions totaled N1.915 trillion, demonstrating ongoing trust in CBN’s tools for managing liquidity.
However, demand was far lower than during the January 31, 2025 auction.
Despite this, the central bank sold N1.395 trillion worth of OMO bills, a 39.5% increase from the N1 trillion sold in January, increasing the overall volume of successful bids.
Analysis of the February 2025 OMO Auction
The CBN offered two subscription tenors in the most recent auction: 355-day and 362-day bills. The initial offer size for both instruments was N300 billion. Â
The longer-duration 362-day bill attracted more investor interest; total subscriptions skyrocketed to N1.499 trillion, greatly exceeding the amount offered.
Although oversubscribed, the 355-day bill had a comparatively lower subscription level of N415.85 billion.
The apex bank increased its overall sales volume in response to this demand. The CBN allocated N402.85 billion for the 355-day bill, while N993 billion was sold for the 362-day bill.
In contrast to the January auction, when only N1 trillion worth of bills were sold, the total amount sold at the February auction reached N1.395 trillion.
February versus January auctions
- The latest February 13 auction and the January 31, 2025, OMO sale show significant changes in yield and market demand patterns. Despite the February auction’s impressive performance, overall subscriptions fell 33.86% from the month before. The two tenors’ combined subscription in January was N2.895 trillion, substantially more than the N1.915 trillion in February. The largest decline was in demand for the 362-day bill, which dropped from N1.959 trillion in January to N1.499 trillion in February—a 23.46% decline.
- The CBN upped its allocation in February despite a decline in investor demand. The overall sum of successful bids was N1 trillion in January, but in February, it increased by 39.50% to N1.395 trillion. This increase points to a more aggressive central bank liquidity mop-up approach, which may be intended to stabilise monetary conditions and contain inflation.
- The change in stop rates and the range of bids for each tenor was another notable distinction between the two auctions. The 347-day bill had a stop rate of 22.50% in the auction held on January 31, 2025, while the 361-day bill cleared at a slightly higher rate of 22.65%. The 355-day bill had a stop rate of 21.3249% at the auction on February 13, 2025, and the 362-day bill closed at 21.45%, indicating reductions of 5.22% and 5.31%, respectively.
- Likewise, there was a declining tendency in the range of bids. In January, bid rates for the 361-day bill ranged from 22.25% to 23.48%, while bid rates for the 347-day bill ranged from 22.22% to 23.38%. By February, the bid range had shrunk to between 20.40% and 22.00% for the 355-day bill and between 20.45% and 22.44% for the 362-day bill.
This suggests that yield expectations have moderated. These reduced stop rates suggest that investors were prepared to take lower returns, maybe due to better financial system liquidity or expectations of monetary policy easing.
Implication
A change in investor allocation plans or tightening liquidity conditions may have contributed to February’s lower subscription numbers.
- However, the CBN is actively controlling the money supply, as evidenced by its decision to raise the quantity sold. This is probably due to demands from the foreign currency market or inflationary trends.
- With fewer expectations of additional monetary tightening by the central bank, market participants expect a steady interest rate environment, as indicated by the drop in stop rates.
- The increased demand for the 362-day bill suggests that investor sentiment is also centred on longer-duration products.
This would suggest a desire to lock in comparatively high returns for a long time, possibly as a buffer against future market volatility.
