The Central Bank of Nigeria has continued to push down yields on short-term securities as excess liquidity in the banking system and strong investor demand reshape conditions in the country’s fixed-income market.
At its latest Open Market Operations auction, the CBN offered N1 trillion worth of bills but received subscriptions totalling approximately N6.32 trillion across three maturities.
The apex bank eventually allotted about N4.4 trillion, rejecting the remaining bids despite subscriptions exceeding the original offer more than six times.
The huge oversubscription reflects the amount of liquidity currently searching for investment opportunities within the financial system.
OMO Rates Continue Downward
Yields declined across the maturities offered.
The December 1, 2026 OMO bill cleared at 19.14 per cent, compared with 19.59 per cent at the September 1 auction.
The February 2027 instrument cleared at 18.49 per cent, down 50 basis points from its previous 18.99 per cent rate, while another February 2027 instrument cleared at 18.41 per cent.
The downward movement has also extended into Nigerian Treasury Bills.
The 364-day Treasury bill cleared at 16.84 per cent at the first primary market auction in September.
For investors, declining yields mean returns available on newly issued short-term government instruments are becoming less attractive compared with the exceptionally high rates seen during earlier phases of monetary tightening.
For the government and monetary authorities, however, lower yields can reduce the cost associated with short-term borrowing and liquidity management.
Banking Liquidity Surges
The repricing comes against the backdrop of unusually high liquidity within Nigeria’s banking system.
System liquidity opened Tuesday at a credit balance of N7.35 trillion, increasing by N3.02 trillion from N4.33 trillion a day earlier.
Banks consequently maintained significant placements at the CBN’s Standing Deposit Facility, while demand for borrowing through the central bank’s funding window remained limited.
The Open Repo Rate remained at 22 per cent, while the overnight rate eased marginally to 22.15 per cent.
The sizeable N4.4 trillion OMO allotment should absorb some of the liquidity, although market expectations indicate that funding conditions could remain relatively comfortable.
The combination of declining short-term yields, high auction subscriptions and abundant liquidity could increasingly influence how institutional investors allocate funds between fixed-income securities and other asset classes.
