DMO Rejects Higher Yield Demands and Allots N269 Billion at Treasury Bill Auction

The Debt Management Office rejected a large share of the bids it received at Nigeria's latest Treasury bill auction, allotting just ₦269.06 billion against ₦450 billion offered, as the government refused to accept the higher yields investors demanded on a market repricing after September's interest-rate cut.

The auction, conducted by the Central Bank of Nigeria on behalf of the Federal Government on 14 October, drew ₦1.03 trillion in subscriptions — down about 42 per cent from the ₦1.77 trillion recorded at the previous auction on 7 October, according to the Financial Markets Dealers Association.

The central tension sat in the one-year bill, where the outcome will shape how quickly government borrowing costs fall over the rest of the year.

The one-year bill carries the tension

Investors submitted ₦982.21 billion in bids for the 364-day instrument against an offer of ₦350 billion. Despite a bid-to-cover ratio of 2.81 times, the DMO allotted only ₦220 billion — rejecting roughly 78 per cent of the demand. Some bids sought yields as high as 18.18 per cent.

The stop rate on the one-year bill nonetheless rose five basis points to 15.90 per cent, its first increase since August. That combination — a small rise in the accepted rate alongside a large rejection of higher bids — signals that the DMO is resisting upward pressure by withholding supply rather than paying more.

At the short end, demand was weaker than the offer. The 91-day bill attracted ₦19.91 billion in bids against ₦50 billion offered, and the 182-day instrument drew ₦30.10 billion. The DMO allotted ₦19.52 billion and ₦29.54 billion respectively, holding their stop rates at 15.50 per cent and 15.80 per cent.

A deliberate pause in the yield decline

The auction marks a pause in the steady decline in primary-market yields that followed the CBN's decision last month to cut the Monetary Policy Rate by 350 basis points to 23 per cent. That cut surprised many market participants and triggered a sharp repricing across the fixed-income curve, with investors reassessing what return they should demand on government paper.

The DMO also cut its offer sharply. The 14 October auction made ₦450 billion available, half the ₦900 billion offered on 7 October. The 364-day offer fell to ₦350 billion from ₦700 billion, and the 91-day and 182-day offers were each reduced to ₦50 billion from ₦100 billion.

According to the FMDA, the smaller offer and allotment "suggest that the government is moderating its borrowing pace to avoid pushing rates higher." There is also a fiscal logic: lighter issuance limits the interest bill at a time when debt service already consumes a large share of government revenue.

Liquidity rises but does not loosen pricing

The restraint comes even as banking-system liquidity has improved. System liquidity rose to about ₦6.30 trillion in the week to the auction from ₦3.71 trillion at the previous week's close, supported largely by ₦2.41 trillion in open market operations maturities. A separate daily report from AIICO Capital put liquidity at roughly ₦6.06 trillion by 15 October, with the overnight rate easing to 20.38 per cent.

Ordinarily, more cash in the system pulls yields lower. Instead, secondary-market Treasury bill yields moved higher: the average yield rose to 17.86 per cent on 13 October from 17.64 per cent on 7 October. The 12-month benchmark climbed 61 basis points to 18.38 per cent, the one-month 94 basis points to 17.75 per cent, and the nine-month 15 basis points to 18.23 per cent.

The FMDA reads that as investors seeking higher returns after the post-MPR repricing, rather than a genuine shortage of money.

What the next auction will reveal

The October programme accounts for ₦2.15 trillion of planned issuance, with ₦800 billion scheduled for 28 October and no auction on 21 October, when ₦392.79 billion in bills is expected to mature. The one-year instrument dominates the quarter, accounting for 75.93 per cent of planned offers.

The key question is whether the five-basis-point rise in the one-year stop rate proves to be a one-off adjustment or the start of a broader reversal. If the DMO continues to reject higher bids at the next auction, it will confirm that the government would rather borrow less than pay up. If investors hold firm on their yield demands, the standoff could push more of the adjustment into the secondary market — and keep the cost of future borrowing higher for longer.