Banks Flood Treasury Bills Market as High Yields Attract Surplus Liquidity in Nigeria
Nigeria’s banking sector is once again turning to government securities as a safe haven, with commercial banks increasingly channeling excess liquidity into high-yield Treasury bills amid weak private-sector lending opportunities and attractive returns in the fixed-income market.
Recent trading activity in the Treasury bills secondary market closed on a bearish note, with average yields rising by 15 basis points to 18.9 percent. The movement was largely driven by profit-taking and repositioning ahead of the Central Bank of Nigeria’s (CBN) Open Market Operations (OMO) auction, as investors adjusted portfolios to take advantage of higher expected returns.
In the OMO segment, yields climbed further, rising by 9 basis points to 21.1 percent, even as Nigerian Treasury Bills (NTBs) remained relatively stable at 17.5 percent. At the latest auction, the CBN offered N600 billion across three maturities, but demand massively outpaced supply, with subscriptions hitting N2.71 trillion—more than four times the amount on offer.
The strong appetite for government debt highlights the liquidity sitting within Nigeria’s financial system, fueled by factors such as maturing securities, Federation Account Allocation Committee (FAAC) inflows, and limited cash absorption by the real sector. In response, the CBN allotted N1.57 trillion at competitive stop rates ranging between 20.10 percent and 21.54 percent, underscoring investor preference for safe, short-term instruments.
Looking ahead, analysts expect demand for Treasury bills to remain robust as the Debt Management Office prepares to offer another N650 billion at the next auction. However, market watchers warn that while yields remain high, continued liquidity pressure could gradually push returns lower, even as banks and institutional investors compete aggressively for available government securities in a volatile rate environment.
source: The sun