…N2.22 trillion in OMO maturities injected liquidity into the banking system
SAT AUG 22 2026-theGBJournal| Nigeria’s fixed-income market ended the week on a firmer footing, supported by strong demand for government securities and substantial system liquidity following the maturity of open-market operations (OMO) instruments.
The decline in bond and OMO yields suggests investors are increasingly positioning for a softer interest-rate environment, although liquidity conditions and the Central Bank of Nigeria’s market operations are likely to remain key drivers in the week ahead.
The overnight (OVN) rate declined by 12 basis points week-on-week to 22.1%, as N2.22 trillion in OMO maturities injected liquidity into the banking system and more than offset N805.16 billion in debits associated with the Federal Government bond auction.
Despite the liquidity injection, average system liquidity moderated to a net long position of N3.95 trillion, compared with N4.64 trillion in the preceding week. The still-substantial liquidity surplus provides room for banks and institutional investors to maintain demand for fixed-income assets, particularly in the absence of fresh OMO supply.
Treasury bills remain supported
The Treasury bills secondary market closed the week on a bullish note, with average yields across instruments declining by 12bps to 19.2%.
Performance, however, was uneven across the segments. Average yields on Nigerian Treasury Bills (NTBs) increased by 3bps to 18.6%, reflecting some position unwinding as investors redirected funds towards OMO securities.
By contrast, average OMO secondary-market yields fell sharply by 40bps to 20.8%. The move was driven largely by reinvestment of maturing OMO proceeds into the secondary market, against a backdrop of limited supply of new OMO instruments.
The divergence between NTB and OMO yields points to a market increasingly influenced by relative value and liquidity positioning rather than a broad-based shift across all short-dated instruments.
Bond market rallies on strong local demand
The FGN bond market also recorded a strong performance, with average secondary-market yields declining by 17bps to 16.8%.
Demand was broad-based across the curve. Average yields fell by 35bps at the short end, 17bps across the mid-curve and 7bps at the long end, reflecting renewed buying interest from domestic investors.
The strongest moves were recorded in selected benchmark securities, including the March 2027 bond, whose yield declined by 199bps, while the January 2035 and April 2037 bonds recorded yield contractions of 39bps and 40bps, respectively.
The rally indicates that investors remain willing to lock in yields despite expectations that monetary conditions could become less restrictive, particularly where current yields continue to offer attractive real and relative returns.
DMO auction reinforces demand
The week’s primary bond auction further underscored the depth of investor demand.
The Debt Management Office (DMO) reopened the January 2035, April 2037 and June 2038 instruments, offering a combined N1.10 trillion. Investor demand reached N1.73 trillion, representing substantial oversubscription, while the DMO ultimately allotted N805.16 billion.
Stop rates declined sharply across all three instruments. The January 2035 bond cleared at 17.15%, down 119bps; the April 2037 bond settled at 17.19%, 116bps lower; while the June 2038 instrument closed at 17.79%, representing a 61bps decline.
The scale of the rate compression, alongside the strong bid-to-cover dynamics, suggests that investors were prepared to accept significantly lower yields to secure longer-duration government securities.
Outlook: further yield compression likely, but liquidity will be decisive
We expect the fixed-income market to retain a bullish bias in the coming week, although the pace of the rally could moderate after the sharp decline in auction stop rates and secondary-market yields.
The principal support will likely come from ample banking-system liquidity, reinvestment demand and the absence of significant fresh OMO supply. Investors are also likely to continue rotating between NTBs, OMO bills and FGN bonds in search of relative value.
The bond market could see further demand at the short and belly sections of the curve, particularly if system liquidity remains elevated. However, the substantial compression in auction stop rates means investors may become more selective, with some participants likely to take profits on securities that have recorded outsized price gains.
At the short end, NTB yields could remain relatively sticky as investors balance reinvestment opportunities against the prospect of further monetary-policy adjustments. OMO yields, meanwhile, could remain under downward pressure if maturing proceeds continue to chase limited supply.
The key risk to the bullish outlook is a renewed liquidity drain through CBN operations, government cash movements or further large bond-market debits. A material reduction in system liquidity could push overnight rates higher and trigger some profit-taking across fixed-income instruments.
Overall, we expect moderate yield compression and continued demand for government securities in the coming week, with liquidity conditions, CBN operations and the availability of fresh primary-market supply determining the strength and breadth of the rally.
X-@theGBJournal|email:gbj@govbusinessjournal.com|govandbusinessj@gmail.com
