FGN bond yields edge higher while Treasury bill yields dip ahead of the auction

Nigeria's fixed-income markets ended the week ended October 23, 2026 in a cautious equilibrium: average Treasury bill yields eased 4 basis points to 18.2 per cent on strong reinvestment demand, while average FGN bond yields inched up 1 basis point to 16.4 per cent as investors demanded more compensation for longer-dated government paper, according to the weekly money-market report carried by the Government and Business Journal.

The report shows average system liquidity strengthened to a net surplus of N6.66 trillion from N5.83 trillion the previous week, supported by elevated balances at the Central Bank of Nigeria's standing deposit window, even though outflows from OMO issuances and FGN bond debits exceeded inflows from maturing instruments. The overnight rate eased 2 basis points week-on-week to 20.3 per cent despite those mixed flows.

Bills rally where liquidity is flowing

Within the Treasury bill complex, performance diverged by segment. Average NTB secondary yields rose 5 basis points to 17.9 per cent on selective selling across the curve, while average OMO secondary yields contracted 21 basis points to 18.5 per cent, supported by strong reinvestment demand from holders rolling maturing central-bank bills. That rotation, from short government paper into central-bank paper, is the clearest evidence that banks and asset managers remained yield-seeking rather than cautious.

The primary market confirmed the appetite. The CBN offered N2.00 trillion in OMO bills at its weekly auction, attracted total subscriptions of N2.73 trillion, and ultimately allotted N2.63 trillion, with stop rates settling at 17.63 per cent on the 138-day tenor and 17.14 per cent on the 180-day tenor, according to the weekly report and earlier exchange data.

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Bonds: cheapening at the short and long ends

The FGN bond secondary market traded bearishly on balance. Average yields expanded at the short and long ends of the curve by 13 and 6 basis points respectively, driven by sell-offs in the MAR-2028 and JUL-2042 bonds, whose yields rose 42 and 65 basis points respectively. The mid-segment went the other way: average yields contracted 5 basis points, supported by demand for the MAY-2029 bond, whose yield fell 18 basis points.

Monday's primary auction supplied the reference points for that repricing. The Debt Management Office reopened the FEB-2034, SEP-2036 and JUN-2038 bonds after offering a combined N1.75 trillion, and total subscriptions of N1.75 trillion matched the offer size. The DMO allotted N1.21 trillion through competitive bids, with the subscriptions largely matched by non-competitive demand, leaving stop rates higher across the tenors: the SEP-2036 cleared at 17.29 per cent, up 50 basis points, the JUN-2038 at 17.19 per cent, up 34 basis points, and the FEB-2034 at 16.99 per cent.

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Why the two-sided week matters

For yield-focused investors, the week's pattern rewards deliberation over momentum. Bills are being bid so heavily because banks are parking excess naira liquidity at attractive, short tenors while remaining wary of duration beyond the curve's belly. The relative-value trade between 180-day OMO paper and 10-year FGN bonds, nearly a full percentage point apart at the averages, is the clearest arbitrage in the domestic market right now.

Policymakers have the opposite concern. System liquidity of N6.66 trillion keeps pressure on the CBN's mop-up operations and on the naira, which weakened across official and parallel markets in the same week. Every basis point the CBN has to pay to absorb liquidity is a fiscal cost, which is why the stop-rate creep at the OMO auctions matters as much as the bond auction repricing.

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The calendar ahead

The next bond auction and OMO cycle will land alongside a week of global monetary events, including the Federal Reserve's October 27-28 decision, and will be watched for a follow-through on the repricing that began this week. If demand keeps matching or exceeding offers at primary auctions while secondary yields drift higher, the DMO's expanded fourth-quarter borrowing programme can be executed without stress, but at material cost.

For corporate treasurers, the practical relevance is that naira fixed-income yields remain among the highest in the emerging-market universe, and the curve's short-end steepness makes Treasury bills a natural parking spot for cash hoards ahead of year-end payments. That positioning is exactly what dampened the bill market this week and kept the overnight rate near 20 per cent.

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