Yields on Nigerian Treasury Bills (T-Bills) and Open Market Operation (OMO) instruments declined in the secondary market last week, as investors continued to exhibit strong demand for naira-denominated assets amid sustained repricing activities.
Market participants anticipate that spot rates on upcoming short-term government instruments may adjust downward to reflect a marginal reduction in benchmark interest rates.
Analysts note that Nigeria’s real interest rate has now climbed to around 9%, largely due to a persistent slowdown in headline inflation. Meanwhile, excess liquidity within the financial system continues to influence subscription levels at Treasury and OMO bill auctions in the fourth quarter.
With subdued lending appetite, elevated credit risks, and narrowing margins, several banks have opted to channel excess liquidity into the Central Bank of Nigeria’s (CBN) Standing Deposit Facility (SDF). The preference for the 24.5% return on deposits at the SDF underscores the banking sector’s cautious short-term positioning and limited credit expansion.
Although recent CBN open market operations have helped to mop up surplus liquidity, deposit money banks are yet to face significant funding pressure.
In the secondary market, bullish sentiment dominated the T-Bills space throughout the week, as investors showed increased buying interest across short-, mid-, and long-term maturities. According to investment houses, average T-Bills yields fell by six basis points week-on-week to 17.39%, ahead of the scheduled ₦650 billion Treasury Bills auction on Wednesday.
However, the OMO market witnessed mixed trading, with mild selloffs at the mid- to long-end maturities—particularly on the 9-Dec and 17-Feb papers—causing the average OMO yield to rise by 105 basis points to 21.62%.
Both T-Bills and OMO markets opened the week quietly, despite healthy system liquidity. Early-week trading was largely muted, constrained by wide bid-ask spreads. By midweek, renewed demand for mid- and long-term papers helped ease yields slightly as investors rotated positions and booked profits.
Toward the end of the week, attention shifted to the CBN’s OMO auction, leading to mild sell pressure on long-dated instruments. The apex bank offered ₦600 billion worth of OMO bills across two mid-tenor papers, attracting robust demand. Total subscription reached ₦2.1 trillion—matching the total amount allotted.
Stop rates for the 193-day and 249-day OMO bills were set at 19.40% and 19.89%, respectively, indicating sustained investor confidence in short-term naira assets despite tightening global financial conditions.
Market analysts expect the strong interest in local currency instruments to persist, supported by moderating inflation, high real returns, and cautious liquidity management by the CBN.
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