Liquidity glut keeps T-bill yields lower despite inflation – Businessday NG

Rising inflation, higher Open Market Operation (OMO) yields, and renewed geopolitical tensions failed to stop Nigerian Treasury bill yields from falling further on Wednesday, as excess liquidity in the financial system continued to outweigh broader market risk signals.

The benchmark 364-day Treasury bill fell to 16.15 percent from 16.20 percent at the previous auction, extending a steady decline that has pushed one-year yields down from 18.47 percent in January, even as inflationary pressures have mounted.
The outcome highlights how deeply liquidity conditions are shaping Nigeria’s fixed-income market, with investors continuing to chase government securities despite rising external risks.

“Investor demand remained heavily concentrated on the 364-day bill, as participants continued to favour longer-tenor instruments to lock in attractive risk-free yields,” Ayodeji Ebo, managing director of PlutusNeo by Afrinvest, said.

The one-year bill attracted subscriptions of about N2.23 trillion against an offer of N550 billion, reinforcing a pattern that has persisted since March, where demand at the long end of the curve has remained overwhelmingly strong despite steadily declining yields.

The 182-day bill also recorded healthy demand, attracting N105.34 billion in subscriptions against a N50 billion offer, while the 91-day bill remained undersubscribed at N71.23 billion compared to the N100 billion offered.

Stop rates on the 182-day and 91-day bills declined marginally to 16.14 percent and 15.949 percent, respectively.
The decline in yields comes at a time when several market indicators have been pointing in the opposite direction.
Inflation rose to 15.38 percent in March from 15.06 percent in February, while long-dated OMO yields recently edged higher to 19.97 percent from 19.91 percent, signalling what Meristem described as a gradual repricing at the long end of the curve.

Geopolitical tensions in the Middle East and uncertainty around global oil prices have also continued to raise concerns about inflation and capital flows into emerging markets such as Nigeria.
Yet, Treasury bill yields continued to decline.
According to Ebo, liquidity conditions remain the dominant driver of market pricing.
“Stop rates declined slightly across all tenors, suggesting continued liquidity in the market and sustained demand for government securities. The relatively weak subscription on the 91-day bill also shows that investor interest remains more selective at the short end of the curve,” he said.

Meristem Securities projected that rates could show “a slight upward bias at the long end of the curve,” citing the recent repricing in OMO yields and stronger sentiment in the equities market.
However, the firm noted that the sheer volume of liquidity in the system would likely cap any meaningful upward adjustment in yields.

“Ample system liquidity at N6.61 trillion as of May 5, 2026, including N3.43 trillion in the Standing Deposit Facility and N2.71 trillion in OMO repayments, alongside a relatively contained offer size of N700 billion, should help anchor rates and limit the extent of any upward adjustment,” Meristem said.

That liquidity surplus is not expected to ease anytime soon. The Financial Markets Dealers Association projects total inflows into the financial system will rise to N10.53 trillion in May, driven largely by maturing OMO bills and Treasury securities.

The trend is already reshaping the fixed-income market. Since January, the one-year Treasury bill stop rate has fallen by more than 230 basis points, even as inflation risks and global uncertainties continue to build.

For now, that liquidity is allowing the government to lower borrowing costs without weakening investor demand.
But analysts say the longer inflation and external risks remain elevated, the harder it may become for liquidity alone to keep long-end yields anchored.