The Nigerian Treasury Bill (NTB) auction conducted on April 23, 2025, saw the Debt Management Office (DMO) offer a total of ₦400 billion across three tenors: 91-day, 182-day, and 364-day. The auction witnessed a remarkable overall subscription of over ₦1.5 trillion, significantly higher than last auction on April 9, 2025, with subscription of about ₦1.13 trillion.
The International Monetary Fund’s (IMF) recent projection paints a rather sobering picture of Nigeria’s inflation trajectory, despite the initial optimism that might stem from a predicted dip in 2025. The forecast, nestled within the April 2025 World Economic Outlook, anticipates an average headline inflation rate of 26.5% for 2025. This figure follows the National Bureau of Statistics’ (NBS) recent rebasing of the Consumer Price Index (CPI), a technical adjustment that often brings about a recalibration of inflation metrics. While a drop from the projected 33.2% for 2024 might seem like a step in the right direction, the IMF’s outlook quickly turns cautious.
The announcement that the Federal Government of Nigeria (FGN) intends to raise between ₦900 billion and ₦1.2 trillion from the domestic bond market in the second quarter of 2025 shows a shift in borrowing strategy compared to the ₦1.8 trillion targeted in the preceding quarter. This substantial reduction in planned domestic borrowing is a key development that warrants careful analysis.
In the week under review, system liquidity was appreciable throughout the week. The money market saw a liquidity surplus of over ₦1.7 trillion billion on Friday. In line with this, short-term borrowing rates saw a decrease, with the O/N rate falling to 26.85% from the previous week’s 32.055%, while the OPR also fell to 26.50% from the previous week’s 31.60%. The Naira fluctuated between a high of $/₦1,610.00 on Tuesday and a low of $/₦1,580.00 on Friday, closing at $/₦1,589.00 on Friday.
At the end of the auction last week, the 91-day tenor had an offer size of ₦50 billion, which attracted a substantial subscription of ₦107.382 billion, leading to an allotment of ₦51.370 billion, and the stop rate settled at 18.0000%. The competitive bidding, with the upper range exceeding the stop rate, suggests that some investors were willing to accept a slightly lower yield to ensure their participation.
The 182-day tenor, on the other hand, with an offer of ₦100 billion, experienced a comparatively lower subscription of ₦53.361 billion, resulting in an allotment of ₦12.722 billion, and the stop rate was established at 18.5000%. Interestingly, this tenor was undersubscribed, indicating potentially less appetite compared to the shorter and longer durations. The stop rate, positioned within the bid range, suggests a more balanced demand and supply dynamic for this particular maturity.
The longest tenor of 364-day had the largest offer of ₦250 billion and witnessed an overwhelming subscription of ₦1.3807 trillion, culminating in an allotment of ₦650.283 billion, and the stop rate closed at 19.6000%. The exceptionally high subscription level for the 364-day tenor underscores a strong preference among investors for longer-duration assets, likely aiming to lock in yields for an extended period. The wide bid range signifies diverse yield expectations and strategies among market participants for this maturity.
The outcomes of this auction have significant implications for the secondary market. The stop rates determined at the primary auction will invariably act as reference points for secondary market trading. No doubt, the stop rates are likely to exert upward pressure on secondary market yields for NTBs with corresponding maturities. Investors seeking to acquire these bills in the secondary market will likely demand yields at or above these stop rates to reflect the prevailing market consensus established during the auction.
Comparing the last auction with the previous one, the earlier auction, with a hefty ₦800 billion on offer, saw ₦1.13 trillion in subscriptions, while the latter, though offering only ₦400 billion, drew a staggering ₦1.5 trillion. This surge in demand, particularly for the 364-day tenor, signals intensifying investor appetite for high-yield, longer-term instruments amid lingering macroeconomic uncertainty.
AUCTION DATE | 23-04-2025 | 23-04-2025 | 23-04-2025 |
ALLOTMENT DATE | 24-04-2025 | 24-04-2025 | 24-04-2025 |
MATURITY DATE | 24-07-2025 | 23-10-2025 | 23-04-2026 |
TENOR | 91-DAY | 182-DAY | 364-DAY |
OFFER (₦) | 50,000,000,000 | 100,000,000,000 | 250,000,000,000 |
SUBSCRIPTION (₦) | 107,382,020,000 | 53,361,846,000 | 1,380,786,533,000 |
ALLOTMENT (₦) | 51,370,628,000 | 12,722,802,000 | 650,283,608,000 |
STOP RATES (%) | 18.0000 | 18.5000 | 19.6000 |
PREVIOUS STOP RATES (%) | 18.5000 | 19.5000 | 19.6300 |
The results of the OMO auction reflect a highly liquid market with strong investor appetite, particularly for longer-dated instruments. Both the 298-day and 319-day tenors were grossly oversubscribed.
For the 298-day bill, CBN offered ₦250 billion, but received bids totalling ₦329.54 billion, representing oversubscription by ₦79.54 billion. The allotment was ₦10 billion short of the full subscription, with a stop rate of 22.37%, positioned towards the upper end of the bid range of 20.4500% to 23.7500%.
The 319-day bill garnered even greater interest. Although the offer was again capped at ₦250 billion, the subscription soared to a staggering ₦1.062 trillion, an oversubscription of over ₦812 billion, more than four times the initial offer. The Central Bank ultimately allotted ₦688.30 billion, far exceeding the offer size, implying a strategic liquidity absorption move in response to market conditions. The stop rate was set at 22.730%, also near the upper boundary of the bid range of 20.3900% to 23.7500%.
The slightly higher stop rate on the 319-day paper, compared to the 298-day, reflects a duration premium. However, both stop rates remain closely aligned. Nonetheless, the aggressive allotment beyond the initial offer for the 319-day paper may also signal the CBN’s intent to rein in excess liquidity that could stoke inflationary pressures or fuel speculative activity in the FX market.
TENOR | AUCTION DATE | OFFER (₦’ B) | BIDS (₦’ B) | RANGE OF BIDS (%) | STOP RATES (%) | PREVIOUS STOP RATES (%) | TOTAL SALE (₦’ B) |
298-DAY | 25-04-2025 | 250.00 | 329.54 | 20.4500-23.7500 | 22.3700 | 19.1900 | 725.70 |
319-DAY | 25-04-2025 | 250.00 | 1,062.30 | 20.3900-23.7500 | 22.7300 | 19.4500 | 951.20 |
Going by the revised forecast of the IMF, the crux of concern lies in the anticipated resurgence of inflationary pressures in 2026, with a significant spike to 37.0%. This projected uptick speaks to the belief that achieving sustained price stability in Nigeria remains a formidable challenge. The IMF’s commentary attributes this volatile outlook to the ongoing reform-driven adjustments within the Nigerian economy, coupled with the persistent headwinds of external volatility. These factors, inherently disruptive and capable of transmitting price shocks, are seen as significant impediments to anchoring inflation expectations.
For the Nigerian financial markets, and particularly the fixed income space, this inflation forecast carries considerable weight. Elevated inflation expectations typically translate to demands for higher yields to compensate investors for the erosion of purchasing power.
The IMF’s projections suggest a continuation of the high-yield environment. The anticipated average inflation of 26.5% in 2025 implies that investors in short-term government securities will likely continue to demand yields that offer a real rate of return above this level. The stop rates observed in the recent NTB auctions, hovering around the high teens, already reflect this sentiment. If inflation expectations remain anchored around the IMF’s forecast, we can anticipate similar or even slightly higher yield expectation at subsequent primary auctions and consequently in the secondary market.
The more concerning aspect for the secondary market is the projected spike in inflation to 37.0% in 2026. This forecast will likely fuel anticipatory behavior among investors. Those holding longer-dated NTBs might become increasingly wary, potentially leading to sell-offs in the secondary market as they seek to mitigate the impact of higher expected inflation on their real returns. This could exert upward pressure on the yields of longer-tenor NTBs in the secondary market.
Furthermore, the volatility implied by the IMF’s forecast could create uncertainty and widen bid-ask spreads in the secondary market. Investors might become more hesitant to take large positions, preferring shorter-term instruments to navigate the uncertain inflationary outlook. This could reduce liquidity, particularly at the longer end of the yield curve. The IMF’s cautious outlook also has implications for monetary policy. The Central Bank of Nigeria will be under increased pressure to maintain a tight monetary stance to combat these anticipated inflationary pressures. This could involve further interest rate hikes.
The DMO’s issuance calendar for the second quarter reveals a schedule of three auctions, one each in April (28th), May (26th) and June (23rd). Each auction will feature the reopening of two existing FGN bonds. In April and May, the bonds on offer will be the 19.30% FGN APR 2029 and the 19.89% FGN MAY 2033. In June, the offerings will shift to entirely new issuances: FGN JAN 2030 (5-year tenor) and FGN JAN 2032 (7-year tenor). The targeted range for the amount on offer for each bond in each auction is between ₦150 billion and ₦200 billion.
For starters, the reduced supply of new bonds might, under normal circumstances, lead to potentially lower yields, especially for the re-opened issues if investors are keen to increase their holdings. However, the prevailing macroeconomic conditions introduce a layer of complexity. Elevated inflation, as previously discussed with the IMF’s forecast, typically pushes investors to demand higher yields. Therefore, even with reduced supply, the underlying inflationary pressures might limit any significant downward movement in yields.
While a lower borrowing target might seem prudent, investors will be closely monitoring the government’s ability to meet its obligations. Any perceived increase in fiscal stress could paradoxically lead to higher risk premiums demanded by investors, potentially pushing yields upwards, especially for longer-tenor bonds like the newly offered FGN JAN 2030 and FGN JAN 2032.
The shift to new issuances in June for the 5-year (FGN JAN 2030) and 7-year (FGN JAN 2032) bonds will be particularly interesting. These new benchmarks will likely attract significant attention and could set the tone for the middle to longer end of the yield curve. The stop rates established at these auctions will be closely watched by market participants and will serve as important reference points for secondary market trading.
As the next Monetary Policy Committee (MPC) meeting of the Central Bank of Nigeria (CBN) comes up next month, the question of the Monetary Policy Rate (MPR) hangs heavy in the air: will the Committee opt for another hold, maintaining the status quo, or will they deploy a further hike in a bid to tame the escalating prices? This decision carries profound implications for the Nigerian financial markets, influencing borrowing costs, investment decisions, and overall economic activity.
The recent uptick in inflation provides a compelling argument for a more hawkish stance. In such a scenario, a hike in the MPR, the benchmark interest rate, becomes a primary tool for the central bank to combat these pressures. Furthermore, a higher MPR can attract foreign portfolio investment, potentially boosting the Naira.
However, the MPC must also carefully consider the potential downsides of an aggressive monetary tightening. The Nigerian economy, while showing some signs of recovery, remains fragile. Successive interest rate hikes could stifle economic growth by increasing the cost of capital for businesses, potentially leading to reduced investment, job losses, and slower overall economic expansion. Moreover, a significant portion of the inflationary pressures in Nigeria are often attributed to supply-side factors, such as infrastructure deficits, exchange rate volatility, and insecurity affecting agricultural output. The effectiveness of an MPR hike in addressing these structural issues is debatable.
The argument for an MPR hold rests on the premise that the previous tightening measures implemented by the CBN are still working their way through the economy. There is a time lag between monetary policy actions and their full impact on inflation and economic growth. The MPC might choose to observe the effects of past rate hikes before implementing further aggressive measures. Additionally, holding the MPR could provide a degree of stability to the financial markets, preventing potential shocks associated with sudden and significant interest rate adjustments. This could be particularly relevant given the government’s ongoing efforts to manage its debt and stimulate economic activity.
In the global markets, oil and cryptocurrency markets are both experiencing notable rallies, each driven by a mix of fundamental and speculative forces. Brent crude rose to nearly $67 per barrel, supported by U.S. inventory drawdowns, supply constraints and ongoing geopolitical concerns, including tensions involving Venezuela and Iran. Meanwhile, Bitcoin surged past $91,000, fuelled by renewed investor risk appetite and a weakening dollar, as traders seek alternatives to fiat currencies.
These movements are influencing global inflation expectations, which remain elevated in major economies like the U.S. and Japan. In turn, central banks are responding cautiously, adjusting guidance and tightening in some emerging markets to stabilise prices and manage capital flows. Investors are redirecting funds into both real assets like oil and digital assets like cryptocurrencies, searching for returns amid macroeconomic uncertainty.
