By Chinwendu Obienyi
The Central Bank of Nigeria (CBN) mopped up N1.1 trillion from the financial system through Open Market Operation (OMO) auctions in May 2025 as part of its ongoing strategy to tighten naira liquidity and bolster foreign exchange (FX) inflows, according to recent market reports from Afrinvest and Cowry Asset Management Limited.
Hence, with the apex bank’s aggressive stance to manage liquidity, reports from the two research and analytical firms revealed that average system liquidity stood at a deficit of N550.9 billion, compared to N453.8 billion in April, underscoring the intensity of the monetary tightening.
This decline was largely attributed to hefty outflows via key CBN liquidity management tools, including the Standing Deposit Facility, which mopped up N827.0 billion; OMO (Open Market Operation) sales worth N1.1 trillion; and sizable drawdowns from primary market sales totaling N1.5 trillion.
These liquidity-absorbing measures far outweighed the inflows received during the period. Modest injections came through the Standing Lending Facility (N86.4 billion), OMO maturities (N101.3 billion), and repayments from primary market instruments (N61.6 billion).
Despite the overarching liquidity squeeze, short-term interest rates remained relatively stable. The Open Repo Rate (OPR) held firm at 26.5 per cent, while the Overnight Rate (OVN) ticked up slightly by 12 basis points to close the month at 27.0 per cent, reflecting cautious optimism among banks even amid depleted liquidity buffers. Reacting to the development, analysts say the CBN’s continued use of OMO auctions is not only aimed at managing excess liquidity but also part of a broader strategy to attract foreign portfolio investors by offering high-yield naira instruments amid a stabilizing FX environment.
During the review period, the CBN also conducted two rounds of Nigerian Treasury Bills (NTB) auctions. A total of N900 billion was offered across the 91-day (N100 billion), 182-day (N200 billion), and 364-day (N600 billion) tenors. Despite prevailing liquidity pressures, the auctions were heavily oversubscribed, attracting total bids of N2.7 trillion.
Investor demand was strongest for the 182-day bills, which posted a 1.2x bid-to-offer ratio, while both short- and long-dated bills recorded 1.0x ratios each. Ultimately, the apex bank allotted N1.2 trillion, significantly above its offer, reflecting investors’ strong appetite for high-yielding instruments.
However, investor participation in the OMO space was more selective, with demand concentrated entirely in long-dated maturities. This strategic shift, analysts say, reflects expectations that market rates may have peaked, prompting a preference for locking in higher yields over longer durations.
Meanwhile, the secondary T-bills market witnessed a broad sell-off, pushing yields higher across the curve. Average yield jumped 105 basis points month-on-month to settle at 21.5 per cent. The short and mid-segments bore the brunt of the sell-offs, with yields climbing by 181bps and 124bps to 19.5 per cent and 21.6 per cent, respectively. Long-dated bills were relatively stable, inching up just 10bps to 23.3 per cent.
Looking ahead, market analysts forecast sustained bearish sentiment in the fixed income space, with yields expected to remain elevated amid persistent fiscal borrowing and the CBN’s tight monetary stance. “Looking ahead, we expect sustained bearish sentiment in the secondary market, with yields likely to remain elevated due to persistent fiscal funding needs and tight system liquidity”, analysts at Afrinvest said.