The Central Bank of Nigeria was expected to conduct its second Treasury bills auction for January 2026 on Wednesday, offering instruments worth N1.15tn, as strong liquidity in the banking system collides with rising borrowing needs and cautious interest rate expectations.

The auction would span the three standard maturities of 91 days, 182 days, and 364 days, continuing the apex bank’s heavy reliance on short-term domestic instruments to fund government operations and manage liquidity.

Market participants say the outcome would be closely watched for signals on the direction of short-term interest rates, especially amid mixed inflation trends and sustained monetary tightening.

Data from the offer circular seen on Wednesday show that N150bn has been earmarked for the 91-day bills, N200bn for the 182-day tenor, while the bulk of the offer, N800bn, is allocated to the one-year bills.

Dealers say the structure reflects persistent investor preference for longer-dated securities that provide relatively higher yields in an uncertain rate environment.

Market operators note that the dominance of the 364-day bills shows both the government’s funding strategy and investors’ desire to lock in returns, given uncertainty over inflation sustainability and future policy direction.

Recent auctions have consistently shown stronger demand at the long end of the curve, even as the central bank seeks to mop up excess liquidity. Despite softer inflation prints in recent months, spot rates are widely expected to remain firm or edge higher.

Analysts point to concerns about inflation reversals, exchange rate pressures, and the central bank’s preference for maintaining tight financial conditions. In December, the stop rate on the 91-day bills rose to 15.80 per cent from 15.50 per cent, while the 182-day tenor increased to 16.50 per cent from 15.95 per cent.

One-year bills were sold at 18.47 per cent, up from 17.51 per cent, reinforcing expectations of elevated yields across the curve.

The bank had also raised rates at earlier auctions even as headline inflation eased in November, signalling caution over the durability of the disinflation trend and the need to support exchange rate stability.

Activity in the secondary Treasury bills market has remained largely subdued, oscillating between calm and bearish sessions despite ample liquidity. Most maturities closed flat as investors adopted a wait-and-see stance ahead of the primary auction and recent Open Market Operations sales.

Only the April 9, 2026, and January 7, 2027 papers recorded notable yield movements, rising by 58 basis points and 12 basis points respectively, while other tenors were unchanged. Dealers say this reflects selective positioning rather than broad-based selling pressure.

Earlier, the central bank allotted N2.64tn across 203-day and 245-day OMO papers at stop rates of 19.38 per cent and 19.39 per cent. Following the allotment, average Treasury bill yields edged up to 18.14 per cent, reflecting negative sentiment driven by sell-offs in the secondary market.

At the first Treasury bills auction of 2026, the government raised N1.14tn at higher stop rates across all maturities. At the January 7 auction, N108.17bn was raised for the 91-day bills, N48.23bn for the 182-day tenor, and N987.78bn for the 364-day bills, as investors repriced risk-free assets, particularly at the long end of the curve.

Subsequently, yields eased slightly in the secondary market, with the average yield on one-year bills declining to about 18.10 per cent, supported by improved demand for naira-denominated government assets ahead of the latest auction. Longer-dated bills due in January 2027 attracted stronger interest, pushing yields down to around 17.51 per cent.

Analysts project a mild upward bias in yields at the latest auction. Matilda Adefalujo, fixed income analyst at Meristem Stockbrokers, said, “We expect stop rates to hover around current levels, with a mild upward bias at the long end of the curve, given the frontloading of government borrowings.”

She added that maturing bills worth N725.19bn this week are significantly lower than the N1.15tn on offer, reinforcing funding pressures.

“We expect the government to keep rates relatively attractive to sustain investor participation. In addition, the levels at which one-year bills are trading in the secondary market around 17.50 per cent should prompt investors to demand higher rates at the auction,” Adefalujo said.

Nigeria’s 2026 fiscal year carries a projected deficit of N23.85tn, with the Federal Government relying heavily on the domestic market to finance it. The Treasury bills issuance calendar for the first quarter of 2026 indicates planned borrowing of N7.55tn within the first three months, a factor analysts say could keep yields elevated.

Olaolu Boboye, lead economist at CardinalStone, said yields on one-year Treasury bills could range between 18.0 per cent and 20.0 per cent. “Overall, we advise fund managers to play at the short to mid segment of the curve, especially in the first half of 2026,” he said.

Demand has remained strong at recent auctions, with total subscriptions exceeding N1tn since December 2025. At the last auction, investors offered N1.54tn, with N1.38tn directed at the 364-day bills, while the 91-day and 182-day bills attracted significantly lower interest.

Analysts attribute the rising participation to investors positioning to benefit from higher yields in a tightening rate environment.

Meanwhile, the domestic debt market is also bracing for a sizeable bond maturity. The Federal Government is expected to repay about N1.03tn in bond maturities on January 22, 2026.

Analysts at FMDA Research noted that nearly 40 per cent of the maturities are concentrated in the 12.50 per cent FGN January 2026 bond. “Market participants should closely monitor the reinvestment pattern, as the size and concentration of inflows could elevate FX demand and put short-term pressure on the naira,” the firm said.

Analysis based on Debt Management Office data shows that the N1.03tn repayment in 2026 represents the highest bond maturity payout in recent years, compared with about N558bn in 2024 and N430bn in 2025, highlighting the rising cost of public debt.

The repayments come amid Nigeria’s expanding debt stock. According to the Medium-Term Expenditure Framework for 2026–2028, the Federal Government plans to borrow N17.89tn in 2026 to fund a widening budget deficit as revenue projections fall sharply below expenditure needs

The PUNCH earlier reported that the Federal Government moved to significantly scale up domestic borrowing, planning to raise as much as N900bn from its January 2026 bond auction.

The amount doubles the N450bn it targeted in January 2025, as fiscal pressures and refinancing needs continue to mount.