Nigeria’s debt market faces another key moment as the Central Bank of Nigeria (CBN) prepares for its second Treasury Bills auction this month, offering ₦290bn across three maturities—a steep drop from ₦480bn at the last sale. With strong liquidity, easing inflation, and high investor appetite, stop rates are expected to moderate across the curve. Report by NIYI JACOBS examines yield outlook, demand dynamics, and investment strategies
Introduction
(CBN) is set to conduct its second Treasury Bills (T-bills) Primary Market Auction (PMA) for September on Wednesday, September 17, 2025, with a total offer size of ₦290 billion. The figure marks a sharp reduction from the ₦480 billion offered at the previous auction, signaling a cautious borrowing strategy by the apex bank.
According to the auction programme, the CBN will raise ₦30 billion in 91-day bills, ₦60 billion in 182-day bills, and ₦200 billion in 364-day bills. The scale-down has set the stage for heightened competition among investors at a time when liquidity in the banking system is robust, inflation is easing, and sentiment for government securities is strong.
Optimism around the auction has been reinforced by the strong performance at the September 3 sale, where the CBN’s ₦480 billion offer attracted ₦1.01 trillion in subscriptions, more than double the offer and far above the ₦396.42 billion recorded at the previous exercise in August. The success of that auction pushed the bid-to-cover ratio to 1.73 times compared to 1.30 times earlier, while the subscription-to-offer ratio rose to 2.11 times from 1.72 times. Analysts linked this surge to the ₦1.47 trillion liquidity balance in the banking system as of September 2, boosted by maturing Open Market Operation (OMO) bills.
At the September 3 auction, the 364-day stop rate inched higher by 25 basis points to 17.69 percent, reflecting investor preference for locking in longer-dated tenors. By contrast, the 91-day bill eased slightly by three basis points to 15.32 percent, while the 182-day paper held steady at 15.50 percent. This outcome reflected the government’s strategy to balance its borrowing across different maturities while managing interest costs.
Following that auction, the secondary market for T-bills remained buoyant. Investor interest kept demand elevated, causing yields to decline across much of the curve. Short-term bills fell by 25 basis points, mid-tenor instruments dropped by 14 basis points, while longer maturities saw a modest uptick of 21 basis points. Overall, the average yield on T-bills closed unchanged at 18.76 percent as of September 15, exactly where it had stood on September 3.
Conditions going into Wednesday’s auction are also favorable. Liquidity in the banking system stood at ₦2.46 trillion as of September 16, supported by OMO maturities of ₦204.87 billion. This means investors have significant cash at hand to reinvest. While some T-bills are also maturing, the absence of 364-day maturities this week reduces reinvestment pressure at the long end, temporarily easing government rollover risks.
Another factor shaping sentiment is the decline in inflation. Headline inflation slowed to 20.12 percent in August from 21.88 percent in July, marking the second consecutive month of moderation. Improved food supply and relative exchange rate stability have given investors more confidence that the high-yield environment could begin to ease, prompting expectations of lower stop rates at this week’s auction.
By reducing the offer size from ₦480 billion to ₦290 billion, the CBN appears to be deliberately tightening supply. Analysts say the move reflects a balancing act between tapping strong investor demand and avoiding unnecessary debt accumulation at high costs. With fewer bills on offer and strong system liquidity, investors are bracing for aggressive bidding that could push rates lower across all maturities.
Market watchers believe stop rates on the 91-day bills could settle around 15.10 to 15.30 percent, the 182-day paper around 15.40 to 15.55 percent, and the 364-day tenor between 17.40 and 17.60 percent. This would narrow yields compared to the previous auction while preserving a premium on the longer tenor to compensate for inflationary risk.
The outcome of the auction carries implications for different stakeholders. For the government, moderating yields mean lower borrowing costs at a time when debt servicing remains a significant burden. Nigeria’s total public debt stood at ₦144.67 trillion in December 2024, with interest payments consuming more than 60 percent of revenues. Every percentage point shaved off T-bill stop rates provides fiscal relief.
For banks, which remain the largest participants in the market, T-bills offer a convenient outlet for deploying excess liquidity. Strong subscription levels help them earn steady returns on risk-free assets, though declining yields could trim margins. Many are already diversifying into corporate bonds and other higher-yield securities.
Corporates also stand to benefit. When government borrowing costs fall, it creates room for companies to raise capital more cheaply, tapping investor appetite for alternatives to government paper. Several large corporates have already turned to the domestic debt market this year, buoyed by the strong demand environment.
Retail investors remain attracted to T-bills as a safe and accessible instrument. With digital platforms offering fractional investments, small savers now participate in auctions alongside institutional players. For them, lower stop rates may mean slightly reduced returns, but the stability of T-bills makes them preferable to savings accounts.
The broader backdrop to the auction is the CBN’s monetary policy stance. Having raised the Monetary Policy Rate to a record 27 percent earlier in 2025, the central bank has stuck to a hawkish approach to contain inflation and stabilize the naira. With inflation now easing, speculation is rising that the cycle of high stop rates on government securities may gradually reverse.
Global factors also play a role. Movements in U.S. Treasury yields and policy shifts by the Federal Reserve and European Central Bank influence investor behavior in emerging markets like Nigeria. The fact that T-bills remain oversubscribed despite global headwinds reflects continuing investor confidence in local debt instruments.
As Nigeria heads into Wednesday’s auction, the stage is set for strong demand chasing fewer bills. With liquidity high, inflation easing, and supply reduced, investors expect stop rates to trend downward. For the CBN, the auction is both a test of market appetite and a chance to manage borrowing costs. For investors, it is another opportunity to recalibrate their portfolios in a shifting yield environment.
