T-Bill Bulls Take Charge as Funding Rates Hold Firm

The Nigerian money market opened last week on a robust footing, with system liquidity posting a net positive balance of N5.7 trillion.

Banks, however, remained largely inactive on the lending side, channelling excess funds into the CBN’s Standing Deposit Facility (SDF) window.

By midweek, over N5.39 trillion was parked with the apex bank — a clear sign of weak credit appetite and a preference for risk-free placements. Despite this abundance, liquidity did not flow freely.

The system was hit by significant outflows, including N731 billion in OMO repayments and over N1.26 trillion in FGN Bond settlements conducted by the Debt Management Office (DMO).

Other debits, totalling N576.62 billion, further tightened cash conditions. Yet, even after these drains, liquidity closed the week at N5.73 trillion, representing a hefty 43% week-on-week increase.

Curiously, funding rates did not mirror the liquidity swell. Overnight NIBOR inched higher by 10bps to 24.88% (from 24.78% the previous week), underscoring persistent funding pressures in the ultra-short end. By contrast, the 1-month, 3-month, and 6-month NIBOR tenors moved southward, shedding 7bps, 29bps, and 15bps, respectively, reflecting the weight of robust liquidity on the curve. Benchmark funding rates remained muted: the OPR held steady at 24.50%, while the Overnight rate was up only a whisker to 24.89%.

For the Nigerian Treasury Bills market, sentiment was strongly bullish. Investors crowded into short, mid, and long tenors, pushing average market yields lower by 12bps week-on-week to 17.93%. The movement suggests that investors are actively positioning around liquidity-driven opportunities, with demand spilling across the entire curve.

The NITTY curve presented a mixed picture. The 1-month tenor bucked the trend, rising 12bps to 16.16% week-on-week, while longer maturities softened significantly.

The 3-month tenor declined 7bps to 16.99%, the 6-month lost 48bps to close at 18.23%, and the 12-month shed 53bps, finishing at 18.57%.

This southward adjustment further validates the broad appetite for fixed-income assets in a liquid market environment.

The Central Bank of Nigeria’s latest OMO auction sparked a flood of demand Friday, with total subscriptions hitting a massive N3.32 trillion.

Yet, in a clear signal of caution, the CBN allotted just N98 billion, lower than N600 billion on offer despite the system being awash with liquidity.

The 88-day paper was left untouched, while the 102-day and 123-day maturities cleared marginally higher at 20.49% and 20.61%, respectively. The conservative allotment reinforced the Bank’s preference to mop up excess liquidity without overextending issuance.

In the secondary market, activity was muted as investors’ attention tilted firmly toward the auction. Minimal buy-side interest trickled into select papers, with light trades observed on the 16-Dec, 3-Mar, and 2-Jun bills.

With liquidity still running strong, investors appear to be holding back for further cues from the apex bank’s short-term liquidity management strategy.

Looking into the coming week, we expect system liquidity to remain buoyant, supported by upcoming maturities of N250 billion in OMO bills and N230.76 billion in Treasury Bills.

However, this will likely be tempered by fresh mop-up activity, as the CBN is expected to conduct both its regular T-bills primary market auction to sterilize excess liquidity. Investors, therefore, should prepare for an active week.