SAT JUNE 06 2026-theGBJournal| Nigeria’s money market remained awash with liquidity last week, driving Treasury bill yields lower even as the Central Bank of Nigeria (CBN) conducted aggressive liquidity management operations that attracted record investor demand.
The average overnight lending rate declined by 9 basis points week-on-week to 22.1%, supported by robust placements at the Standing Deposit Facility (SDF), where banks parked an average of N4.87 trillion daily, compared with N4.49 trillion in the previous week.
The elevated level of excess liquidity helped keep short-term funding conditions largely stable through most of the period.
Pressure emerged toward the end of the week after outflows from Treasury bill and Open Market Operation (OMO) auctions exceeded incoming liquidity. The Debt Management Office (DMO) allotted N1.46 trillion at its Treasury bill auction, while the CBN sold N3.04 trillion worth of OMO bills. These outflows outweighed N2.73 trillion in maturing OMO instruments.
Despite the sizeable sterilization effort, banking system liquidity remained resilient. Average net system liquidity closed at a surplus of N4.66 trillion, marginally above the N4.61 trillion recorded a week earlier.
The liquidity backdrop is expected to strengthen further in the coming week, aided by the absence of major liquidity-draining operations and inflows of approximately N2.09 trillion from maturing OMO bills. The development is likely to reinforce demand for fixed-income securities and sustain downward pressure on short-term yields.
In the secondary Treasury bill market, investor demand pushed average yields lower by 7 basis points to 18.8%. However, trading dynamics varied across instruments.
Average yields on Nigerian Treasury Bills (NTBs) rose 3 basis points to 17.5%, reflecting profit-taking by investors who secured allotments at Wednesday’s primary auction and subsequently sold portions of their holdings in the secondary market.
By contrast, the OMO segment witnessed stronger buying interest, particularly from foreign portfolio investors seeking attractive real returns. As a result, average OMO yields declined by 13 basis points to 20.9%.
At the DMO’s Treasury bill auction, N1 trillion was offered across the 91-day, 182-day and 364-day maturities. Investor appetite remained strong, with subscriptions reaching N2.16 trillion, representing a bid-to-offer ratio of 2.2 times.
The DMO ultimately allotted N1.46 trillion, reflecting a bid-to-cover ratio of 1.5 times. Stop rates increased across all tenors, rising by 10 basis points, 5 basis points and 20 basis points to 16.05%, 16.19% and 16.35% for the 91-day, 182-day and 364-day instruments, respectively.
The CBN’s OMO auction drew even stronger demand. Investors submitted bids worth N3.3 trillion against an initial offer of N600 billion, underscoring persistent appetite for high-yielding short-term securities.
The apex bank eventually allotted N3.04 trillion, significantly exceeding its initial offer size. Stop rates cleared at 21.54% for the seven-day bill, 21.40% for the 35-day instrument and 20.02% for the 133-day tenor.
The strong subscription levels suggest investors remain eager to lock in elevated yields despite growing expectations that liquidity conditions could drive rates lower in coming months.
Meanwhile, Nigeria’s sovereign bond market traded with a mildly bearish bias. Average yields on Federal Government of Nigeria (FGN) bonds edged higher by 2 basis points to 16.3%, reflecting selective selling pressure despite the broader liquidity surplus.
The upward movement was concentrated at the short end of the benchmark yield curve, where average yields rose 10 basis points. The March 2027 bond led the decline in prices, with its yield jumping 27 basis points.
Mid-tenor and long-dated bonds were largely unchanged as investors maintained a cautious stance.
Looking ahead, analysts expect liquidity conditions to remain supportive for fixed-income assets, particularly Treasury bills, where demand from banks and institutional investors is likely to remain strong.
However, the pace of yield compression may be moderated by Nigeria’s sizeable domestic borrowing programme and lingering risk aversion among offshore investors, factors that continue to influence positioning across the sovereign debt market.
For now, abundant liquidity and recurring maturity inflows are expected to remain the dominant drivers of market sentiment, keeping pressure on short-term rates even as policymakers balance inflation concerns against the need to maintain orderly financial market conditions.
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