Foreign portfolio investors are maintaining strong interest in Nigerian short-term debt instruments, particularly the Central Bank of Nigeria’s (CBN) Open Market Operation (OMO) bills, despite the recent downward adjustment in policy rates.
Market data show that investor appetite remained robust during the CBN’s most recent auction, where the apex bank sold ₦1.4 trillion worth of 249-day OMO bills at a yield of 19.89%.
The sale was heavily subscribed even though yields have moderated compared to earlier in the year.
Analysts attribute the continued demand to Nigeria’s high real yields and the relative stability of the naira, which together have made naira-denominated debt among the most attractive in emerging markets.
“Even with gradual monetary easing, Nigerian securities continue to offer superior carry returns,” said a London-based emerging markets strategist, noting that foreign investors view Nigeria’s fixed-income space as one of the few offering double-digit yields supported by exchange-rate stability.
The CBN, which cut its benchmark Monetary Policy Rate (MPR) last month for the first time in five years, has been deliberate in pacing its easing cycle.
Policymakers remain cautious as inflation, though easing, is still elevated. The inflation rate dropped to 18% in September, the first reading below 20% in three years.
Despite concerns that falling yields could discourage capital inflows, market sentiment remains positive. Demand for one-year Treasury Bills and OMO instruments has remained firm, with September’s T-Bill auction oversubscribed by more than two times, underscoring foreign investors’ continued confidence.
According to financial analysts, the CBN’s ability to sustain high-yield instruments while keeping the naira stable is a key driver of ongoing interest. “As long as the central bank maintains sufficient OMO supply, the naira carry trade remains profitable,” said another investment strategist.
Nigeria’s local-currency bonds have outperformed many of their emerging market peers this year, with returns up 31% year-to-date, according to Bloomberg’s EM Local Currency Government Index.
The gains have come even as short-term yields have softened since August, when similar-tenor bills traded nearly 400 basis points higher.
Market watchers warn, however, that a reduction in OMO issuance or excess liquidity could compress yields further, narrowing opportunities for investors seeking high returns.
For now, Nigeria’s fixed-income market continues to benefit from foreign inflows that are helping to support the local currency and deepen secondary market liquidity.
With inflation trending downward and foreign participation still strong, the CBN’s cautious approach to easing appears to be maintaining the delicate balance between stimulating growth and preserving investor confidence in Nigeria’s financial markets.