The N41.80 trillion worth of Open Market Operation (OMO) bills scheduled to mature in the remainder of the second half of 2026 is expected to put further pressure on liquidity in the financial system, even as investors staked a total of N36.623 trillion across fixed-income instruments in August.

Analysts at Cordros Securities said the sizeable OMO maturity profile, coming against a system liquidity position of about N4.22 trillion year-to-date in 2026, strengthens the case for the Central Bank of Nigeria’s (CBN) decision to broaden participation in the OMO market.

The analysts noted that interest in OMO instruments surged last month following the CBN’s relaxation of participation rules, which allowed domestic individuals, corporates and non-bank financial institutions to access the market.

The number of OMO trades rose by 43.7 per cent in August compared with July, while investors staked N26.297 trillion on OMO bills during the month, up from N16.442 trillion recorded in July.

Overall, total investments across fixed-income instruments increased to N36.623 trillion in August from N29.355 trillion in July.

Cordros said the expanded investor base would provide the apex bank with a wider channel to absorb excess naira liquidity, particularly as a significant volume of OMO bills approaches maturity.

“Broadened OMO participation as an additional sterilisation channel” would give the CBN greater capacity to absorb excess domestic liquidity, the analysts said in an emailed note.

They explained that recycling part of the N41.80 trillion OMO maturities through fresh OMO issuance to domestic investors could reduce the liquidity injected into the financial system while preserving the attractiveness of OMO securities to foreign investors.

“The expanded investor base, therefore, allows the CBN to address both sides of the FX volatility equation, retaining foreign capital through competitive yields while absorbing domestic naira liquidity that could otherwise generate additional FX demand,” Cordros said.

The Head of Financial Institutions at Agusto & Co, Ayokunle Olubunmi, also attributed the surge in OMO participation to the high level of liquidity in the financial system.

“I think the surge is expected. Don’t forget that we had a lot of liquidity in the financial system,” Olubunmi said.

He noted that banks had raised about N4.6 trillion, largely from domestic investors, while collective investment schemes and money market mutual funds had also recorded growth.

“So, when you now have CBN relaxing these rules, those funds will find their way into the OMO participation. Funds that probably have been waiting on the sideline before,” he said.

According to Cordros, the CBN’s immediate challenge is to manage the liquidity impact of the OMO maturities while keeping yields sufficiently attractive to foreign investors.

The analysts noted that the apex bank had shown a preference for absorbing liquidity rather than fully accommodating demand at recent OMO auctions.

They said the key question was no longer whether the CBN would absorb liquidity, but where it would set OMO stop rates going forward.

Cordros projected that OMO stop rates would remain broadly anchored to prevailing domestic-to-global yield differentials, with a clearing range of 19.5 per cent to 20.5 per cent for the rest of 2026.

Olubunmi, however, expects increased participation by domestic investors to put further pressure on OMO rates as the premium between OMO and Treasury bill yields narrows.

“As you are seeing OMO participation also, that will drive down the rates,” he said.

He explained that the CBN could either increase rates in the Treasury bill market or reduce OMO rates to narrow the premium between the two instruments.

The yield differential was already evident in August, with the CBN dashboard showing a closing OMO yield of 22.67 per cent, compared with weighted average FGN Bond yields of mostly 16 per cent to 17 per cent across the displayed tenors.

Cordros said broader domestic access to OMO securities should eventually deepen secondary market activity as individuals, corporates and non-bank financial institutions channel more liquidity into the securities.

In the near term, however, the development is expected to shift some demand away from Treasury bills and FGN Bonds, potentially triggering transitional repricing before OMO and NTB yields eventually converge.

“Since the circular was issued, average OMO yields have fallen 71bps to 20.7 per cent while average NTB yields have expanded by 73bps to 18.9 per cent,” Cordros said.

The analysts added that sizeable unmet demand at OMO auctions could spill into the secondary market, putting further downward pressure on OMO yields and bringing them closer to prevailing 364-day NTB secondary market yields.