The yield on Nigeria’s one-year Treasury bills has continued to slide, reaching 18.86 per cent in the latest auction, even as the Monetary Policy Committee (MPC) opted to keep interest rates unchanged.
After months of elevated yields spurred by surging inflation and tight monetary policy, recent auctions point to a more stable and predictable environment for government debt instruments.
At Wednesday’s auction, the one-year Treasury bill closed at 18.86 per cent, sharply down from 29.21 per cent recorded at the beginning of 2025.
This downward trend persisted despite the Central Bank of Nigeria’s (CBN) decision to maintain the Monetary Policy Rate (MPR) at 27.5 per cent during its meeting on Tuesday.
“As it stands, inflation seems to be stable and moderating, fixed income yields are falling, yet the MPR is still kept at 27.5 per cent, unmoved. Seems the CBN is super worried about inflation,” said Kalu Aja, a financial analyst.
Ayodeji Ebo, Managing Director at Optimus by Afrinvest, also weighed in, hinting that the MPC may have doubts regarding the reliability of recent inflation data.
“Not sure the MPC is convinced of the rebased inflation numbers. Also, they may be trying to ensure the FX stability is sustained,” he said.
Nigeria’s inflation rate fell for a third consecutive month in July, hitting 22.22 per cent. This trend has bolstered expectations of a rate cut shortly.
Nonetheless, the MPC’s decision to maintain its current stance reflects ongoing concerns about domestic inflation and global economic uncertainties, both of which still threaten price stability.
Among the various tenors offered during the auction, the most notable decline was seen in the 91-day bill, which fell to 15.58 per cent from the previous 16.32 per cent. The 182-day instrument dropped to 16.80 per cent, down from 17.64 per cent. Meanwhile, the one-year note declined to 18.86 per cent from 19.94 per cent in the last auction.
Despite robust investor interest, the government allotted fewer bills than expected, a calculated move aimed at minimising borrowing costs. The Debt Management Office (DMO) allotted just N289.98 billion, even though total subscriptions exceeded N673 billion.
In the first half of the year, Nigeria’s net domestic borrowing amounted to around N3.4 trillion, driven primarily by sales of Nigerian Treasury Bills and Open Market Operations (OMO), which together reached N13.4 trillion. However, significant liquidity drains and coupon repayments moderated the net impact.
Afrinvest analysts project the country’s budget deficit to hit N17.2 trillion in 2025, a figure that exceeds the government’s official estimate of N14.1 trillion.
“This leaves the FG with a domestic borrowing gap of at least N10.0 trillion to cover the second half under a base case – and potentially more if external funding underdelivers,” the report noted.
The firm further anticipates that yields on government debt in the second half of the year will be shaped by the extent of inflation moderation, changes in monetary policy, and the pace of fiscal borrowing.
“We expect average benchmark yields to trend between 19.5 per cent and 22.5 per cent across FGN Bonds and NTBs, respectively, slightly easing from H1 peaks,” Afrinvest added.
Investment experts at CardinalStone also observed that monetary policy decisions are starting to reflect more directly in financial indicators, citing slower growth in money supply.
“This effective transmission, coupled with the expectation for relative stability in the FX market and benign energy prices, is likely to support further disinflationary pressures in the second half of the year. As such, the CBN may be inclined to cut the policy rate by 50–100bps,” the firm explained in its mid-year outlook.
In terms of demand at the latest auction, the 91-day paper saw N41 billion in bids against a N50 billion offer, with only N13 billion allotted. The 182-day instrument received N24 billion in subscriptions for a N20 billion offer, but just N5 billion was sold. The 364-day bill garnered overwhelming interest—subscriptions stood at N609 billion, nearly three times the offer—yet only N271 billion was allotted.
