Investors’ demand for the Central Bank of Nigeria’s (CBN) Open Market Operation (OMO) bills surged to N6.31 trillion on Tuesday, more than six times the amount offered, even as yields continued to decline.
The CBN offered N1 trillion across three tenors but received N6.31 trillion in subscriptions and allotted about N4.4 trillion, reflecting strong appetite for the central bank’s securities as investors seek to lock funds into relatively low-risk naira assets.
The 154-day bill attracted the highest demand, with N4.2 trillion in subscriptions against N400 billion offered. It cleared at a stop rate of 18.41 percent, translating to a true yield of 19.96 percent, down from 20.64 percent at the previous auction.
The 68-basis-point decline means investors are accepting lower returns even as demand for OMO bills remains elevated.
Victor Ogundijo, a fixed-income trader at CardinalStone, previously attributed strong OMO demand to increased liquidity in the banking system, driven by inflows from maturing securities and coupon payments.
‘The improved demand was influenced by increased interbank liquidity on the back of accumulated inflows from bond coupons and OMO maturities that have been in the system,’ Ogundijo said.
His comments provide context for the latest auction, where investors continued to channel excess cash into CBN securities despite lower yields.
Analysts have also pointed to investors’ expectations around the future direction of interest rates as a factor behind strong demand. In May, Oluwaseun Williams, a fixed-income analyst, said investors were balancing the need for flexibility with the desire to lock in prevailing yields amid uncertainty over whether rates had peaked.
The latest auction comes as the CBN expanded the pool of investors able to participate in OMO transactions. In August, the apex bank reopened OMO participation to individuals, corporates and non-bank financial institutions, a move expected to deepen the market and provide an additional avenue for liquidity management.
The decision is particularly relevant as Nigeria approaches the 2027 election cycle, when increased government spending could inject more liquidity into the financial system and complicate the CBN’s efforts to contain inflation. BusinessDay previously reported that analysts viewed the expanded OMO access as another tool for absorbing potential election-related liquidity.
The CBN has increasingly relied on OMO sales to sterilise excess liquidity in the financial system. By selling the securities, the apex bank takes naira out of circulation for the duration of the investment, helping to manage money-market conditions.
Across the latest auction, the 84-day bill attracted N797.21 billion in subscriptions and was allotted at N637.19 billion, with a stop rate of 19.14 percent. The 147-day paper received N1.31 trillion in bids and was allotted N817.32 billion at a stop rate of 18.49 percent.
The heavy demand despite falling yields suggests investors remain comfortable holding OMO bills, supported by their relatively low risk and the availability of surplus liquidity.
However, continued yield compression could gradually push investors towards longer-dated securities or higher-risk assets in search of better returns.
For the CBN, the auction shows it can continue to absorb substantial liquidity from the financial system even as market yields ease.