The one-year Treasury bill yield dropped from 22.59 percent at the previous sales to 21.68 percent at Wednesday’s auction due to a spike in liquidity and a drop in the inflation rate.
The actual return on the one-year T-bill remained positive at 2.8 percent, while the stop rates on the 182-day and one-year T-bills also approached 17.82 and 17.75 percent, respectively.
According to analysts, this is partially due to the rates’ reaction to the rebased inflation, which increased from 34.8 percent in December 2024 to 24.48 percent in January 2025.
This and predictions of additional moderation throughout the year fuel
intense buying interest among investors.Â
The present yield is the lowest since the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) adopted a hawkish policy stance, which caused interest rates to rise by 850 basis points.
In a previous analysis, Meristem’s fixed-income analyst, Matilda Adefalujo, predicted that stop rates for the provided products would probably drop.
Adefalujo had stated, “We expect additional rate reductions, propelled by enhanced system liquidity, which as of Monday was N582.95 billion. Additionally, a maturing obligation of N1.30 trillion, double what is being offered, is added to the system, making investors net-liquidity receivers.”
“Lower Treasury-bill paper supply of N650 billion compared to N700 billion in the previous auction. Given these circumstances, the CBN may grasp the opportunity to significantly reduce borrowing costs by decreasing stop rates across all tenors.”
The system is expected to see roughly N4.5 trillion in liquidity in March.
What Is The Economic Impact of A Diminishing Yield?
Although the government’s domestic debt servicing benefits from the lowering rate environment, there are worries that the lower yields may lead to capital flight, jeopardizing the CBN’s efforts and putting additional pressure on the naira.
In their fixed-income research, CardinalStone analysts noted that open market operation (OMO) instruments, with a competitive and comparatively stable return of 27.3 percent, would continue to attract international interest.
Interestingly, OMO bills—still only available to banks and international investors—have seen less yield moderation than T-bills.
“If the fundamental outlook for the naira stays relatively stable, our scenario analysis indicates that significant capital outflows would only occur if the one-year OMO rate drops to 22.0 percent or lower.”
According to the paper, “finding reinvestment opportunities with comparable yields may be challenging across most frontier and emerging markets (EMs)—especially as several central banks have already begun monetary easing,” even if foreign portfolio investors (FPIs) decide to leave.
What Impact Does This Have On Secondary Markets?
The secondary market for T-bills has been largely bullish since the last auction. On March 3, 2025, the average yield on T-bills was 19.90 percent, down 206 basis points from the post-auction 21.96 percent.
Timeline For Yield On One-Year T-Bills
As a result of the rate hikes, the yield on the one-year bill increased from nine percent at the first auction in January 2024 to 23.44 percent by the end of February. Shortly after the MPC’s first rate hike in March, it jumped to 27.33 percent.
It steadily dropped to its present levels after reaching a peak of 30.7% in November.
Auction Demand
Despite being less than the N2.4 trillion of the last auction, the demand for the one-year bill was nevertheless robust on Wednesday at N1.8 trillion.
Out of the N2.4 trillion subscription, the CBN only sold N774.1 billion.
Investor interest in the 182-day and 91-day Treasury bills was low. Only N61.52 billion of the N70 billion 91-day bill was sold, and just N50.94 billion of the 182-day bill was traded.
While 91-day yields stayed at 17.76 percent, 182-day yields fell from 19.97 percent to 19.48 percent.
