Treasury Bills
Nigeria’s Central Bank Holds Elevated OMO Rates as Treasury Yields Decline
The Central Bank of Nigeria (CBN) maintained elevated yields on its open market operation (OMO) bills during a Tuesday auction to sustain foreign portfolio inflows and stabilize the naira amid declining treasury bill yields.
According to auction data, the apex bank offered and sold ₦2.12 trillion ($1.38 billion) worth of OMO bills at a yield of 23.7% on one-year tenor instruments.
The rate stands above the 15.88% yield on similar-tenor treasury bills issued in July by the Debt Management Office (DMO) showing a spread of about 782 basis points.
Analysts interpret the CBN’s yield stance as a deliberate measure to preserve the attractiveness of OMOs to offshore investors who are restricted from participating in standard treasury auctions but permitted to invest in OMO instruments.
These instruments are primarily used by the central bank to manage excess liquidity and drive foreign exchange inflows.
Oyinkansola Samuel, an analyst at Rand Merchant Bank, noted that the CBN is likely maintaining OMO yields above the 20% threshold to ensure their continued appeal.
“The central bank may be deliberately keeping OMO yields above 20% to maintain their appeal to offshore investors,” she said.
Estimates from RMB suggest that foreign investors accounted for 30% to 40% of the demand in the latest OMO auction. These investors are required to convert dollars into naira before purchasing OMO bills, effectively injecting FX liquidity into the market and supporting naira stability.
The OMO yield strategy has contributed to an improved FX position for Nigeria. After a significant devaluation that saw the naira lose over 43% of its value in 2024, the currency has stabilized in recent months due in part to robust portfolio inflows.
According to the National Bureau of Statistics (NBS), inflows into Nigeria’s money market instruments rose by 151% in Q1 2025 to $5.2 billion with OMOs accounting for 92% of total inflows.
Samir Gadio, Head of Africa Strategy at Standard Chartered Plc, reinforced this view. “The central bank has managed to attract significant portfolio inflows via the OMO route, which has helped anchor the naira,” Gadio stated.
While treasury yields have trended lower this year, partly reflecting improving inflation expectations and monetary policy adjustments, OMO yields have remained significantly higher, drawing a clear bifurcation in Nigeria’s fixed income market.
The divergence in yields underpins the dual objective of the CBN: sterilizing excess liquidity and supporting the foreign exchange market through non-debt-creating dollar inflows.
The strategy has gained prominence as the apex bank navigates a complex macroeconomic environment marked by persistent FX volatility, inflationary pressures, and fiscal challenges. By maintaining elevated yields in the OMO segment, the CBN is providing an incentive-driven buffer that supports external reserves and cushions the exchange rate from speculative pressures.
Market participants continue to monitor the central bank’s liquidity management tools and rate decisions for signs of broader policy shifts.
However, the consistent pricing of OMOs above 20% signals a firm commitment to attracting and retaining foreign capital despite ongoing structural challenges in the economy.