In a strategic move to curb excess liquidity and maintain equilibrium in Nigeria’s financial markets, the Central Bank of Nigeria (CBN) executed Open Market Operations (OMO) worth N7.12 trillion in the second quarter of 2025. The sales were directed at qualified financial institutions, including commercial banks and foreign portfolio investors.
Throughout the quarter, the CBN initiated eight OMO auctions designed to absorb surplus cash from the system and stabilize short-term interest rates. Despite offering a total of N4.5 trillion across its standard tenors, demand significantly outpaced supply, reflecting heightened investor appetite for high-yield fixed income instruments.
According to a Q2 financial markets update by Parthian Limited, a leading investment banking firm, the total OMO allotments reached N7.12 trillion, even with one auction resulting in no sales. The increased demand was largely fueled by elevated yields that have made OMO bills and Treasury bills increasingly attractive, particularly to Nigerian banks seeking to bolster their earnings amid lower lending activity.
Major lenders, buoyed by ample liquidity, have been allocating substantial funds—some averaging over N1 trillion—to money market instruments. This trend reflects a broader strategy to leverage favorable interest rates while minimizing credit risk.
In the secondary market, investor enthusiasm persisted. On Tuesday, the average yield on OMO instruments dipped by 31 basis points to 26.1%, driven by strong demand. The long end of the curve witnessed the most pronounced movement, as yields fell by 50 basis points to 25.90% last week. The short and medium tenors saw milder contractions, down 2 and 12 basis points to 26.14% and 27.19%, respectively, closing the week with an average yield of 26.41%.
Comparatively, yields had stood at 26.70% the prior week, marking a consistent downward trend throughout June 2025, largely attributed to persistent bargain hunting and market optimism.
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