•Interbank rates soar to 26% as the apex bank intensifies its war on inflation
Nigeria’s money market experienced sustained liquidity pressure in January despite a slight easing compared to December, as the Central Bank of Nigeria (CBN) continued its aggressive monetary tightening measures, withdrawing over N15 trillion from the financial system.
Average system liquidity closed the month at a net negative N2.4 trillion, a marginal improvement from December’s deficit of N2.9 trillion. The gross liquidity withdrawal included N8.5 trillion through Open Market Operations (OMO) sales, N2.9 trillion placed by banks at the Standing Deposit Facility (SDF), and N3.7 trillion raised via primary market issuances. These outflows were partly offset by inflows totaling approximately N8.4 trillion, comprising OMO maturities, primary market repayments, and Standing Lending Facility usage, leaving the system in a persistent liquidity deficit and keeping interbank funding conditions tight.
Despite the slight improvement, the market contended with heavy liquidity drain primarily driven by large SDF placements, OMO sales, and primary market sales. This imbalance was reflected in elevated borrowing costs in the interbank market, with the Open Buy Back Rate (OBB) and Overnight Rate (ON) each rising by 3.6 percentage points month-on-month to close at 26.1% and 26.4%, respectively, underscoring ongoing funding stress across banks.
During January, the CBN conducted two Nigerian Treasury Bills (NTB) auctions and three rounds of OMO auctions. The NTB auctions offered instruments worth N2.4 trillion across tenors of 91, 182, and 364 days. Investor appetite was robust, with total bids amounting to N4.9 trillion, yielding a bid-to-offer ratio of 2.2 times. Demand was strongest for the 364-day bills, which saw a bid-to-offer ratio of 2.4 times, while the 91-day and 182-day bills attracted weaker interest with ratios of 0.8 and 0.6 times, respectively. The CBN allotted a total of N2.2 trillion at these auctions.
Complementing this, the apex bank intensified liquidity sterilization by withdrawing N8.5 trillion through OMO sales aimed at mopping up excess naira liquidity and supporting foreign exchange inflows.
Yields on NTBs increased amid these pressures, with the average yield rising by 60 basis points to 18.5%. Short- and mid-tenor bills were hardest hit, with yields up 107 and 72 basis points at 17.4% and 18.4%, respectively. Long-dated bills remained largely flat, as market participants anticipate ongoing bearish conditions due to tight liquidity and fiscal financing demands.
In the bonds market, the Debt Management Office (DMO) marked the start of 2026’s auction calendar by reopening three Federal Government of Nigeria (FGN) bonds—February 2031, February 2034, and January 2035—offering a combined N900 billion. Strong investor demand produced a bid-to-offer ratio of 2.5 times, with the January 2035 bond most favored at 3.6 times. The February 2034 and February 2031 bonds had ratios of 2.5 and 1.7 times, respectively.
At auction close, the DMO allotted N398.1 billion on the February 2031 bond at a marginal rate of 17.6%, while N576.3 billion and N570.1 billion were allotted on the February 2034 and January 2035 bonds, respectively, both at 17.5%.
Secondary market activity in FGN bonds turned bullish in January as portfolio managers sought to lock in attractive yields amid expectations of future rate moderation prompted by easing inflation. This dynamic pushed average bond yields down by 8 basis points to 16.5%, with short- and mid-term instruments seeing yield compression of 25 and 2 basis points, closing at 16.6% and 16.9%, respectively. Conversely, yields on long-dated bonds edged up by 20 basis points to 15.8%.
The ongoing liquidity tightening and active debt management underscore the CBN’s commitment to price stability and macroeconomic stability, even as market participants navigate the challenging funding environment.
