Nigeria’s Treasury Bill market is undergoing a transformation as investors flood it with liquidity while inflation continues to ease.
As a result, at Wednesday’s auction, the one-year T-bill yield dropped to 21.68% from 22.59%, marking its lowest level since the central bank began aggressively hiking rates.
Investors Flock To Government Securities
Moreover, investors are actively pouring funds into government securities, drawn by positive real returns—2.8% on the one-year bill—especially since authorities rebased inflation from 34.8% to 24.48%.
At the same time, the narrowing gap between stop rates on one-year (17.82%) and 182-day (17.75%) bills signals intense demand, further fuelled by ₦1.30 trillion in maturing obligations injecting fresh liquidity into the system.
More Liquidity, Lower Yields Ahead?
Consequently, market analysts expect yields to decline further, since the government has not only reduced T-bill supply but also plans to inject ₦4.5 trillion in March.
“With more cash chasing fewer securities, rates will likely fall even more,” noted by a fixed-income expert at Meristem, Matilda Adefalujo.
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Capital Outflows A Growing Concern
However, despite the benefits of lower borrowing costs for the government, the declining yields raise concerns.
On one hand, cheaper domestic debt servicing is advantageous.
On the other hand, capital outflows could rise, as foreign investors continue prioritising higher-yielding OMO bills (27.3%).
In fact, analysts caution that if OMO rates plunge below 22%, foreign investors may begin exiting at a faster pace.
Market Response And Outlook
Since the last auction, the secondary market has reflected these shifts, with average yields dropping 206 basis points to 19.90%.
Although investors still placed ₦1.8 trillion in bids for one-year bills, they showed less interest in shorter-tenor instruments.
Ultimately, as inflation moderates and liquidity expands, Nigeria’s fixed-income landscape continues evolving—offering opportunities for some while raising concerns for others.
