CBN: N103bn OMO sales forces OBB/OVN rates to soar by over 300%
Effort by the Deposit Money Banks to have a piece of the Central Bank of Nigeria’s (CBN) Open Market Operations (OMO) sales last Friday, forced the Open Buy Back (OBB) and Overnight (OVN) rates to soar, hence, most banks resulted to borrowing due to lack of liquidity to meet their allocations.
Open market operations (OMO), refers to the buying and selling of government securities, bonds in the open market in order to expand or contract the amount of money in the banking system, facilitated by the CBN.
Consequently, the OBB and OVN rates expanded by over 300 per cent to 25.83 per cent and 26.00 per cent from 7.50 per cent and 7.92 per cent respectively, which may not be unconnected with the CBN’s N103bn OMO sale.
Open Buy Back (OBB), are discountable securities traded in the Nigerian Inter-Bank financial market.
Daily Times Nigeria gathered that the OMO auction may also have contributed to investors remaining fairly profitable in the bond market last Friday with the June 2019 maturity date, gaining the highest in yield with 73bps to 15.03 per cent.
Although the yields on the 5yr and 7yr benchmark bonds were flat at 15.83 per cent and 15.07 per cent respectively, yield on the 10yr benchmark bond declined by 12bps to 15.08 per cent.
Meanwhile, analysts expect activities in fixed income this week to be influenced by liquidity levels and foreign investor participation.
An OBB transaction is usually sealed between dealers of different banks and settlement is made at Central Bank where bills are transferred from the borrower’s bills holding to the lenders bills portfolio. On the other hand, funds equivalent to the face value of the treasury bills is moved from the account of the lender to the borrower’s current account with the Central Bank of Nigeria.
However, Overnight rates refers to rates charged by the apex bank for overnight borrowing from deposit money banks.
Because the amount of money a bank has fluctuates daily based on its lending activities and its customers’ withdrawal and deposit activity, the bank may experience a shortage or surplus of cash at the end of the business day. Those banks that experience a surplus often lend money overnight to banks that experience a shortage so the banking system remains stable and liquid.
At the IEFX window, the Nigerian Naira opened the week at N360 levels against the USD. However, the NGN gained +1.18 per cent to N469.70 against the GBP and +0.40 per cent to N422.12 against the EUR.
While the NGN gained +0.42% to N478 against the GBP, it remained relatively unchanged at N363 against the USD and N421 against the EUR at the parallel market.
Stories by Bonny Amadi
