Hedge funds drive OMO demand on CBN’s 21% returns

Hedge funds and other yield-seeking investors are showing strong appetite for Nigerian Open Market Operations bills, with N4.26tn in subscriptions recorded at the Central Bank of Nigeria’s latest auction.

The heavy demand came despite the CBN cutting the stop rates on both instruments offered at its 26 August, 2026 auction, highlighting investors’ continued search for high returns on naira assets.

The apex bank offered N1tn across 97-day and 132-day OMO bills but received bids worth more than four times the amount on offer.

Investors committed N783bn to the 97-day bill against an offer of N500bn, while the longer-dated 132-day instrument attracted a much larger N3.48tn against the same N500bn offer.

The CBN eventually allotted N613bn on the 97-day bill and N2.18tn on the 132-day instrument, taking total allotment to N2.80tn.

The 97-day bill cleared at 19.90 per cent, down 49 basis points from 20.39 per cent at the previous auction. Its true yield was approximately 21.02 per cent.

For the 132-day bill, the stop rate fell 36 basis points to 19.65 per cent from 20.01 percent, while the effective yield stood at about 21.16 per cent.

Analysts say the auction highlights the attraction of CBN bills to investors seeking to lock in high naira returns amid an environment of strong liquidity and declining nominal yields.

The concentration of demand in the 132-day instrument suggests that investors were willing to commit funds for longer in exchange for a slightly higher effective return.

The CBN’s decision to allot N2.80tn, almost three times the scheduled N1tn offer, also underscores the scale of liquidity it is absorbing from the financial system through OMO operations.

Hence the hedge funds and other sophisticated investors are piling on the bills t tap effective yields above 21 per cent. Experts say the yield makes OMO bills an attractive avenue for deploying naira liquidity.

The latest auction therefore signals that competition for high-yielding government securities remains intense, even as the CBN gradually reduces nominal rates.(Punch)