The yield on Nigeria’s one-year treasury bill declined to 21.68% at the latest auction, down from 22.59% in the previous sale, as improved liquidity and declining inflation influenced investors’ demand. Analysts attribute the lower yield to the rebased inflation rate, which stood at 24.48% in January 2025.
The lower yields are largely influenced by the substantial liquidity injection into the system. Matilda Adefalujo, a fixed-income analyst at Meristem, had previously predicted a decline in rates due to improved system liquidity, which stood at ₦582.95 billion at the start of the week. In addition, a maturing obligation of ₦1.30 trillion, twice the amount being auctioned, contributed to the downward pressure on yields.
Another factor is the reduced supply of Treasury bills. The Central Bank of Nigeria (CBN) offered ₦650 billion in T-bills at this auction, lower than the ₦700 billion in the previous auction. Given these conditions, analysts believe the CBN might be strategically lowering borrowing costs.
The decline in T-bill yields is favorable for the government’s domestic debt servicing but raises concerns about capital outflows. Analysts at CardinalStone noted that foreign portfolio investors (FPIs) would continue to favor Open Market Operation (OMO) instruments, which offer a more attractive yield of 27.3%.
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OMO bills remain restricted to banks and foreign investors, experiencing milder yield moderation compared to T-bills. However, analysts warn that if the one-year OMO rate drops to 22% or lower, significant capital outflows could materialize, putting renewed pressure on the naira.
Looking ahead, analysts expect further moderation in T-bill yields as liquidity conditions improve and inflation remains on a downward trajectory. However, maintaining investor confidence—particularly among FPIs—will be crucial for the CBN’s broader monetary strategy.
