DMO eyes yield moderation with N220bn T-bills auction

By Chinwendu Obienyi

The Debt Management Office (DMO) is set to conduct a Nigerian Treasury Bills (NTB) Primary Market Auction (PMA) tomorrow with a total of N220 billion worth of instruments on offer.

The auction comes at a time when market liquidity remains elevated and yields are beginning to adjust downward after a brief period of bearish sentiment.

According to market analysts, the DMO’s latest NTB offering is expected to attract strong investor interest, given the current liquidity surfeit in the financial system. With investors showing increased appetite for short-dated instruments and the Federal Government appearing to curtail supply, yields are likely to taper further in the near term.

The treasury bills market closed on a bearish note last week, as market players anticipated another round of Open Market Operations (OMO) auction by the Central Bank of Nigeria (CBN) to mop up excess liquidity. The average yield across all tenors climbed 11 basis points to 21.4 per cent. Yields in the NTB and OMO segments rose by 7 basis points (bps) and 4bps to 17.8 per cent and 24.7 per cent, respectively.

Similarly, the CBN floated an OMO auction with N600 billion on offer, split equally between the 113-day and 204-day maturities. The auction was met with robust demand, recording N1.63 trillion in total subscriptions. However, the CBN allotted N1.55 trillion exclusively in the 204-day tenor at a stop rate of 23.87 per cent, signaling its preference for absorbing longer-term liquidity.

Looking ahead, market sentiment is expected to shift bullish as investors reprice yields downward. Analysts say the combination of robust system liquidity, the DMO’s measured approach to debt issuance, and high investor demand could lead to lower stop rates at the upcoming auction.

“The DMO is playing a delicate balancing act, managing borrowing costs while keeping the market adequately supplied,” a Lagos-based fixed income trader said. “With N220 billion on offer and current demand dynamics, we expect aggressive bidding and a moderation in auction rates.”

The auction outcome will provide a key signal for market direction in the coming weeks, especially as policymakers navigate the twin challenges of inflation control and debt sustainability.