One-year T-bills plunge to 21.68% as liquidity floods market

…OMO rates to sustain FPI inflows

Surge in market liquidity as well as decline in inflation rates has driven Nigerian Treasury Bill yields sharply lower, with the Debt Management Office (DMO) witnessing the one-year yield drop to 21.68 percent at Wednesday’s auction.

At the auction on Wednesday, yield dropped to 21.68 percent from 22.59 percent as liquidity swamped the market,

More and more the stop rates on the one-year and 182-days T-bills are drawing closer, at 17.82 percent and 17.75 percent respectively. Hence real return on the one-year T-bill stays positive at 2.8 percent.

This is also as a result of rates responding to the rebased inflation rate of 24.48 percent from 34.8 percent, coupled with expectations of further moderation in the year, fueling strong buying interest from investors.

The current yield is the lowest yield since the beginning of the hawkish policy stance by the Monetary Policy Committee, which led to an 850 basis point hike in interest rates.

Matilda Adefalujo, fixed-income analyst at Meristem, had projected in an earlier report that it anticipates that stop rates for the offered instruments will likely decline.

“We anticipate further rate declines, driven by improved system liquidity, which, as at Monday, was N582.95 billion, also added to the system is a maturing obligations of N1.30 trillion, twice what is being offered, making investors net-liquidity receivers,”

“Lower Treasury-bill paper supply of N650 billion versus N700 billion in the prior auction. Given these factors, the CBN may seize the opportunity to further ease borrowing costs by lowering stop rates across all tenors,” she said. A liquidity of about N4.5 trillion will hit the system in March.

What does the declining yield mean for the economy?

While the declining yield environment is favourable for the government’s domestic debt servicing, there are concerns that the lower yields could trigger capital outflows, potentially undermining the CBN’s efforts and putting renewed pressure on the naira.

Analysts at CardinalStone pointed in its fixed-income report that foreign interest will remain strong in OMO instruments, whose yield remains relatively stable and competitive at 27.3 percent.

Notably, OMO bills, which remain restricted to foreign investors and banks, have experienced milder yield moderation than T-bills.

“ Our scenario analysis suggests that significant capital outflows would only materialize if the one-year OMO rate declines to 22.0 percent or lower, provided the fundamental outlook for the naira remains relatively stable,”

“Furthermore, even if foreign portfolio investors (FPIs) choose to exit, finding reinvestment opportunities with comparable yields may be challenging across most frontier and emerging markets (EMs)—especially as several central banks have already begun monetary easing,” it said in the report.

How does this affect the secondary market?

Since the last auction, the secondary T-Bills secondary market has remained predominantly bullish. As of March 3, 2025, the average yield on T-Bills had fallen by 206 basis points to 19.90 percent, compared to 21.96 percent post-auction.

Timeline of the yield on one-year T-bills

Yield on the one-year bill grew from nine percent at the first auction in January 2024, to 23.44 percent by the end of February, which was a signal of the rate hikes that happened. It then spiked to 27.33 percent in March just after the first rate hike by the MPC.

By November, it peaked at 30.7 percent before gradually declining to current levels.

Demand at this auction

Demand for the one-year bill remained high at N1.8 trillion, although lower than N2.4 trillion of the previous auction.

Overall, the CBN sold only N774.1 billion worth of the N2.4 trillion subscription it got.

The 182-days and 91-days treasury bills saw minimal interest by investors. Only N61.52 billion of the N70 billion 91-days bill was sold. Likewise, the 182-days bill, only N50.94 billion was sold.

Yields on the 182-day dropped to 19.48 percent from 19.97 percent, while that of 91-days remained at 17.76 percent.