Demand Sat at the Long End
The shape of the bidding tells the clearest story. Investors largely bypassed the shortest bill, leaving the 154 day instrument undersubscribed, and crowded into the 329 day paper, where bids ran at more than five times the amount on offer. That is duration buying, not cash parking. Banks and fund managers holding surplus naira preferred to lock in a return for close to a year rather than roll short bills, a choice that only makes sense if they expect the central bank's sterilisation rates to be lower, not higher, by the time a shorter bill matures.
The central bank met that demand almost in full at the long end, allotting ₦2.79 trillion of the ₦2.82 trillion bid for the 329 day bill, while rationing the short end, where it sold ₦280.76 billion of the ₦457.89 billion subscribed. The result is a deliberate maturity swap inside the sterilisation programme: cash leaves the banking system for longer, and the refund pressure that weekly maturities create is pushed further out.
Accepting Two and a Half Times the Offer Is a Policy Choice
An auction offer is normally a ceiling signal. The central bank offered ₦1.50 trillion and chose to sell ₦3.854 trillion, exceeding its own offer by about ₦2.35 trillion. That decision sits in a clear context. Banking system liquidity closed last week at ₦8.505 trillion, up 15.36% in a week, despite ₦5.667 trillion of OMO sales on November 3 and November 6 alone. Maturing paper and fiscal flows are rebuilding cash balances faster than scheduled auctions drain them, and Tuesday's expanded allotment is the central bank adjusting the drain to the size of the pool rather than to the size of its calendar.
The cost of that adjustment is visible in the yield structure. Stop rates fell as tenor lengthened, from 17.44% at 154 days to 15.99% at 329 days, yet true yields converged near 18.8% on all three bills. Investors accepted a lower headline rate on the longest bill because its discount structure delivers almost the same effective return, and the central bank secured the longest lock up at the lowest stop rate on the curve. Sterilisation on this scale is expensive, but Tuesday's pricing shows the expense buys time: ₦2.79 trillion of the cash absorbed will not return to the system until the 329 day bill matures.
For the equity market, the read across is the opportunity cost of cash. Every trillion naira placed in OMO bills at effective yields near 18.8% is capital that has chosen a risk free return over listed shares, and an allotment of this size, taken up willingly at the long end, says that preference hardened this week rather than softened. The next datapoint is already scheduled: the Debt Management Office's ₦800 billion Treasury bills auction held today, settled on November 12 against ₦148.565 billion of maturing bills, will show whether the government's own paper can pull the same weight of demand the central bank just absorbed.
