CBN policy actions, reinvestment behaviour to determine impact on rates, yields and the naira…..
Nigeria’s financial system is projected to receive a liquidity injection of about N8.61 trillion in February 2026, driven largely by maturities from Open Market Operations (OMO), Treasury bills, and coupon payments on government bonds.
The projection was contained in the Financial Markets Dealers Association’s Monthly Market Report for February 2026, which noted that the inflows will play a significant role in shaping money market conditions, fixed income yields and foreign exchange dynamics in the weeks ahead.
The association, which represents treasury and financial market practitioners in Nigeria, said the operating environment remains “liquidity-managed rather than liquidity-driven,” with Central Bank of Nigeria actions continuing to shape near-term funding conditions and foreign exchange movements.
What the data is saying
FMDA identified OMO maturities as the dominant liquidity driver for the month, underscoring the CBN’s continued reliance on the instrument for liquidity management.
A breakdown of the expected inflows shows:
OMO maturities are projected at N4.61 trillion, accounting for about 53 percent of total inflows.
Treasury bills maturities are estimated at N1.43 trillion.
FGN bond coupon payments are expected to total N448.96 billion.
Corporate bond coupon payments are projected at N6.85 billion.
FAAC allocations are estimated at N1.97 trillion to be shared among the federal, state and local governments.
According to FMDA, proceeds from these maturities are expected to flow back into the financial system, potentially easing funding pressures after a period of aggressive liquidity tightening.
January liquidity squeeze sets the tone
The projected February inflows follow a sharp liquidity contraction in January, when the Central Bank intensified its tightening stance.
FMDA estimates that more than N6.76 trillion was withdrawn from the system through OMO operations and Treasury bill auctions during the month.
The aggressive liquidity mop-up kept interbank rates elevated, with Overnight and Open Buy Back rates trending higher, reflecting tight funding conditions across the banking sector.
Impact on yields and the naira
Fixed income yields remained elevated in January compared with December 2025, as tight liquidity and firm rate expectations shaped market sentiment.
FGN bond yields rose across most maturities, with the most significant repricing seen in the seven to ten-year segment, driven largely by supply pressures and cautious investor positioning rather than any shift in monetary policy expectations.
Treasury bill yields also moved higher, particularly at the six to twelve-month maturities, following sustained auction sizes and strong stop rates.
Overall, the yield curve steepened modestly, suggesting investors continue to demand higher compensation for longer-dated instruments amid heavy issuance and liquidity reallocation.
Despite mixed movements in global bond markets, FMDA noted that Nigeria’s long-dated yields were largely influenced by domestic liquidity and supply dynamics, outweighing external rate signals.
FX outlook: reinvestment and sterilisation key
Market participants, including institutional treasury dealers across commercial and merchant banks as well as discount houses, said that while the N8.61 trillion inflow could ease funding pressures, its ultimate impact on system liquidity and the naira will depend on several factors.
These include reinvestment behaviour of institutional investors, the CBN’s sterilisation actions through fresh OMO and Treasury bill auctions, and fiscal-side liquidity injections, particularly FAAC disbursements.
In January, a combination of rising external reserves, firmer oil prices, OMO auctions and a softer U.S. dollar helped provide some support for the naira, which strengthened to about N1,380 per dollar.
Oil prices also firmed during the month as geopolitical risk premiums rose amid concerns over potential U.S. action against Iran.
What you should know
Recent data showed that in January 2026, the Central Bank sterilised more than N15 trillion from the banking system, marking one of the most aggressive liquidity mop-up operations in recent years.
The liquidity drain was driven largely by large-scale OMO sales of about N8.5 trillion, significant placements by banks at the Standing Deposit Facility totalling N2.9 trillion, and primary market Treasury bill issuances of roughly N3.7 trillion.
These outflows were only partially offset by inflows from OMO maturities and Treasury repayments, leaving the banking system significantly cash-constrained by the end of the month.
The tightening stance pushed interbank funding stress higher, with money market rates, including Open Buy Back and Overnight rates, rising sharply as banks competed for limited liquidity.
While February’s large inflows, dominated by OMO maturities, may provide temporary relief, analysts say attention will remain on how aggressively the Central Bank moves to re-absorb liquidity and what that could mean for interest rates and foreign exchange stability.
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