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By Chinwendu Obienyi
Nigeria’s banking system recorded a significant cash surge in November, with total inflows reaching N5.11 trillion, driven by a combination of large Treasury redemptions, OMO maturities and government disbursements.
The wave of cash eased funding pressures across the financial system, sending interbank rates sharply lower and boosting demand for fixed-income instruments.
Specifically, the month under review saw N1.35 trillion in Nigerian Treasury Bill (NTB) maturities and N1.76 trillion in Open Market Operation (OMO) maturities, providing an immediate liquidity boost to banks. Additional support came from the N2 trillion FAAC allocation, which filtered into the system as government spending picked up.
Market traders said the combined inflows left the system “comfortably funded,” with many banks carrying surplus positions through most of the month. The strong liquidity backdrop pushed down short-term borrowing costs. The Overnight Nigerian Interbank Offered Rate (O/N NIBOR) fell 814 basis points month-on-month to 22.86 per cent, while the 1-month, 3-month, and 6-month rates also declined moderately, reflecting reduced demand for overnight borrowing as banks held large idle balances.
Hence, the cash glut also reshaped activity in the fixed-income market, where investors sought opportunities to lock in yields ahead of potential policy adjustments. The Nigerian Treasury Bill Yield (NITTY) curve trended lower across most maturities, while average T-bill yields in the secondary market dropped 355 basis points to 16.84 per cent, supported by strong buying interest from liquidity-heavy institutions.
Furthermore, OMO auctions in the month were heavily oversubscribed. The Central Bank of Nigeria (CBN) offered N600 billion, but demand reached N980.35 billion, with investors funnelling more than N300 billion into the longer-dated 188-day paper. The CBN eventually allotted N903.35 billion, keeping stop rates relatively stable at 20.45 per cent and 20.54 per cent.
At the final NTB auction of the month, investors showed a clear preference for longer tenors as a hedge against reinvestment and interest-rate risk. Nearly 90 per cent of total bids targeted the 364-day bill, prompting the Debt Management Office (DMO) to allot N1.09 trillion, despite offering N700 billion. The 364-day stop rate eased slightly to 16.04 per cent, while the shorter bills were unchanged.
Commenting on the development, market analysts say the N5.11 trillion liquidity injection highlights the unusually strong funding backdrop in November, buoyed by large maturities and public-sector inflows. Although actual daily liquidity balances fluctuated due to cash-reserve requirements and market transactions, the scale of inflows kept the system flush and supported easing across short-term rates.
According to them, December money market conditions are expected to remain broadly liquid, though slightly tighter than November due to year-end funding needs and corporate demand. Interbank rates may edge higher but are unlikely to spike unless the CBN intensifies OMO interventions.
“Investor focus in the fixed income market is likely to remain on longer-dated instruments, with yields under mild upward pressure at the short end. Overall, liquidity will stay elevated, market activity selective, and sentiment shaped by CBN actions, inflation expectations, and FX developments”, analysts at Cowry Research said.
