Nigeria’s fixed income market delivered a split verdict this week: the Central Bank of Nigeria drew a record N5.50 trillion in bids at Tuesday’s Open Market Operations (OMO) auction even as secondary-market OMO yields kept climbing.
Meanwhile a Treasury bills auction a day later pushed the one-year bill’s stop rate below 17% for the first time since June — a signal that the government is prioritizing cheaper domestic borrowing even as investors continue pricing in elevated near-term risk.
Record Demand, Moderating Stop Rates at Tuesday’s OMO Auction
The CBN offered N1.00 trillion on Tuesday, across three tenors — 91-day, 147-day and 154-day bills, split N200.00 billion, N400.00 billion and N400.00 billion, respectively — in an auction aimed at mopping up part of the N2.25 trillion in OMO maturities falling due the same day.
Investor appetite proved far larger than the amount on offer: total subscriptions climbed to a record N5.50 trillion, with demand concentrated in the longer tenors as the market rushed to lock in prevailing yields. The 147-day and 154-day papers alone attracted N1.10 trillion and N3.83 trillion in bids.
The CBN ultimately allotted N2.88 trillion, a sales-to-offer ratio of 2.88x. Stop rates on the two longer tenors moderated to just below the 19% mark, settling at 18.99%, while the 91-day bill cleared higher at 19.59%.
The apparent contradiction between falling stop rates and rising secondary-market yields — which climbed 22 basis points week-on-week to 20.58%, driven by sustained sell-offs in bills maturing in 11 to 46 days — suggests investors are still demanding a premium for near-term paper even as the central bank guides primary rates lower on longer-dated instruments.
T-Bill Auction Pushes One-Year Yield to Sub-17% First Since June
Wednesday’s Treasury bills auction drew total subscriptions of N3.35 trillion, slightly below the prior auction but still comfortably oversubscribed.
Demand was overwhelmingly concentrated in the 364-day tenor, which accounted for the bulk of both bids received and allotments made.
The stop rate on the one-year bill fell 31 basis points to 16.84%, its first clearing below 17.0% since June.
“We believe this reflects the government’s continued effort to moderate domestic borrowing costs due to the elevated financing needs, aided by strong market liquidity and demand,” analysts at Meristem Securities said.
Total allotments across the auction rose to N865.72 billion, with the 364-day instrument alone accounting for N762.17 billion of that total.
Bullish Tone Extends to Secondary T-Bills and FGN Bonds
The bid tone carried into the secondary market, where Treasury bills traded firmer and average yields slipped 6 basis points to 18.86%.
Buying interest was strongest around the belly of the curve but also reached into shorter-dated paper, with the 12-Aug-27, 29-Jul-27 and 8-Jul-27 bills seeing yields decline 69, 49 and 43 basis points, respectively.
The rally was mirrored in FGN bonds, where average yields compressed 12 basis points to 16.68% on strong demand for mid-tenor securities.
The 21-Jun-38, 18-Apr-37 and 27-Mar-35 bonds led the move, with yields falling 59, 35 and 30 basis points, respectively — underscoring investors’ willingness to extend duration even as short-end OMO paper remained under selling pressure.
The Takeaway
Taken together, the week’s auctions paint a market that is comfortable extending duration and locking in yield further out the curve, even as it remains cautious on the shortest-dated OMO paper.
The sub-17% clearing on the one-year Treasury bill is the clearest evidence yet that the CBN is actively steering borrowing costs lower on its primary benchmark tenor, a trend worth watching for its read-through to the broader disinflation and rate-cut narrative heading into the CBN’s next Monetary Policy Committee meeting.
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