Investor demand for Open Market Operations (OMO) bills surged at the Central Bank of Nigeria’s (CBN) latest auction, with subscriptions hitting about N1.45 trillion, underscoring sustained liquidity in the financial system even as yields moderated across maturities.
The apex bank offered a total of N600 billion across the 35-day, 70-day and 126-day instruments, but strong market participation pushed total subscriptions significantly higher, reflecting continued appetite for high-yield, low-risk instruments amid uncertain interest rate expectations.
Stop rates settled at 21.54 percent for the 35-day paper, 20.70 percent for the 70-day tenor, and 20.10 percent for the 126-day instrument, indicating a relatively tight spread across the curve and reinforcing expectations that rates may be nearing a plateau.
Market breakdown shows a clear divergence in investor positioning. Demand was heavily skewed toward the longest tenor, with the 126-day instrument attracting about N1.45 trillion in subscriptions, while shorter maturities saw comparatively weaker participation.
Analysts say the pattern reflects a growing “barbell strategy” among investors, with market participants either staying short for flexibility or extending duration to lock in yields, while largely avoiding the mid-tenor segment.
“Investor behaviour suggests a cautious market, with participants uncertain about whether interest rates have peaked. This is driving a preference for short-dated instruments for flexibility, while also supporting demand for longer tenors to lock in current yields,” said Oluwaseun Williams, a fixed income analyst.
He added that the mid-curve continues to lose appeal as pricing dynamics compress relative value opportunities.
Read also: SEC warns against ponzi scheme promoted on WhatsApp, Instagram, Telegram, Facebook, TikTok
“Now that stop rates on the mid- and longer-dated papers are close, investors would rather go for longer maturities,” said Victor Ogundijo, a fixed income trader at CardinalStone, noting that the weak mid-tenor demand reflects a persistent yield mismatch.
Analysts said the 70-day instrument struggled to attract strong relative demand because it offered lower yields than the short-dated paper without providing enough maturity premium to compete with the heavily subscribed 126-day bill.
“The 70-day tenor is in a ‘no-man’s land’. It offers a lower return than the short paper, while not giving enough premium to justify locking funds compared to the longer instrument,” Williams explained, citing discussions with market participants including foreign portfolio investors and banks.
Read also: OMO, T-bills maturities to drive N10.53trn liquidity inflows in May
Despite the uneven demand profile, analysts attribute the overall strong subscription levels to elevated system liquidity, driven by recent inflows from maturing securities and fiscal disbursements.
“Demand for OMO bills is expected to remain strong given their low risk and attractive yields,” said Taiwo Kareem, an expert in fixed income markets.
He further noted that near-term liquidity conditions are likely to remain supportive.
“Liquidity in the near term is likely to stay in surplus, supported by inflows from maturing OMO bills, treasury bills, bond coupon payments, and FAAC distributions,” he said.
Another market participant, Victor Ogundijo, added that improved liquidity conditions were already evident ahead of the auction.
“The improved demand was influenced by increased interbank liquidity on the back of inflows from bond coupons and OMO maturities,” he said.
Analysts also emphasise that the CBN’s continued ability to sell above its initial offer highlights the central bank’s active liquidity management stance through OMO operations.
“Allotment is largely a function of demand, within levels the CBN is comfortable with, and it also supports the bank’s liquidity mop-up objective,” said an industry expert.
However, despite the large allotments, analysts expect only a temporary tightening effect on system liquidity, given ongoing inflows from maturities and fiscal channels.
“Even with higher allotments, any liquidity squeeze is likely to be short-lived, given expected inflows from maturities, coupons, and FAAC distributions,” Kareem added.
Read also: POLL: Would you still read this if you knew AI wrote it?
Looking ahead, market participants expect demand for OMO bills to remain resilient, though increasingly selective, as investors continue to respond to evolving rate expectations and relative value across maturities.
“Liquidity dynamics and interest rate expectations will continue to drive participation. If rates remain elevated, strong demand should persist in upcoming auctions,” analysts said.