The Nigerian fixed-income market is undergoing a significant correction, marked by the sharp convergence of yields between Open Market Operations (OMO) bills and Nigerian Treasury Bills (NTBs). This narrowing spread is widely regarded by analysts as the most tangible sign that the Central Bank of Nigeria’s (CBN) recent move towards monetary policy easing is beginning to take hold, effectively normalizing a previously distorted market structure.
The yield spread between the long-end (364-day) NTBs and OMO bills has compressed from a peak of over 650 basis points (bps) earlier this year to approximately 300 bps as of mid-October 2025. This acceleration follows the CBN’s decision in September to cut the Monetary Policy Rate (MPR) and adjust system liquidity.
OMO bills—typically used by the CBN for liquidity management—had consistently offered higher yields than NTBs, which are used to fund the Federal Government’s short-term deficits. This disparity was largely artificial, stemming from a 2019 policy that restricted OMO purchases primarily to banks and foreign investors, isolating it from the broader domestic investment market.
In the secondary market, latest reported figures show the 364-day OMO yield moderating faster, settling around 21.8%, while the functionally similar 364-day NTB yield hovers closer to 18.7%.
The primary driver of the yield compression is the Central Bank’s shift in stance, which culminated in the Monetary Policy Committee (MPC) reducing the benchmark MPR by 50 basis points to 27.00% in September 2025—the first rate cut since 2020.
“This trend reflects the combined impact of the recent MPR reduction, improved system liquidity, and a generally lower country risk premium,” noted a research analyst at a top financial services firm. “The convergence is a welcome step toward eliminating the multi-tiered interest rate regime that has long distorted market pricing.”
Furthermore, the MPC’s decision to adjust the Cash Reserve Ratio (CRR) for commercial banks from 50% to 45% injected substantial liquidity into the banking system. This increase in accessible funds naturally drives down the cost of borrowing for both the government and the banking sector, forcing yields lower across the board, especially for the high-yielding OMO instruments.
The accelerated convergence has immediate implications for both government finance and investor returns:
- As OMO yields fall, the CBN’s cost of borrowing to mop up excess liquidity declines, resulting in significant savings on debt servicing. Similarly, lower NTB rates mean cheaper financing for the Federal Government’s short-term obligations.
- Domestic fixed-income investors, including mutual funds and institutional investors who previously benefited from the artificially high OMO yields, will see their returns moderate.
- The downward pressure on rates across government securities provides a beneficial environment for large corporations looking to issue Commercial Papers (CPs) to raise working capital, as they can now do so at potentially lower rates.
The CBN’s push for normalization is supported by sustained disinflation, with the headline inflation rate moderating for the fifth consecutive month to 20.12% in August 2025. This improvement strengthens the appeal of local instruments and gives the central bank room to prioritize growth support.
Despite the drop in yields, demand for government securities remains robust, indicating investor confidence in the Naira fixed-income market as stability returns. The ongoing convergence confirms that the era of policy-induced market bifurcation is nearing its end, paving the way for more orthodox and efficient monetary transmission.
