CBN Rate Cut Triggers Yield Slump As Investors Chase Long-term Securities

The Central Bank of Nigeria’s (CBN) 350-basis-point cut in the Monetary Policy Rate (MPR) has triggered a broad decline in fixed-income yields, prompting investors to shift towards longer-term securities to lock in prevailing returns before further repricing.

The Financial Markets Dealers Association (FMDA) said the development reflected growing expectations of further interest rate moderation, as market participants repositioned their portfolios in response to the lower-rate environment.

The shift was particularly evident at the recent Treasury bills auction, where demand was strongest for the 364-day instrument. The tenor recorded a bid-to-cover ratio of 13.65 times, highlighting strong investor appetite for longer-dated securities.

The FMDA said the development “reflects strong investor appetite to lock in longer dated yields following the MPR reset,” adding that weaker demand at the shorter end pointed to “a clear rotation toward longer dated instruments as market participants adjust to a lower rate environment.”

The repricing followed the Monetary Policy Committee (MPC) ‘s decision to reduce the MPR from 26.5 per cent to 23 per cent, representing a 350-basis-point reduction. The cut has since filtered through the money and fixed income markets, pushing yields lower across Treasury bills, Open Market Operations (OMO) instruments and government bonds.

Average Treasury bill yields fell by 96 basis points from 18.77 per cent on September 18 to 17.81 per cent on September 25, while average OMO yields declined by 129 basis points from 19.80 per cent to 18.51 per cent over the same period.

The overnight funding market also responded to the policy shift, with the Nigerian Overnight Financing Rate (NOFR) falling from about 22 per cent before the MPC meeting to around 20 per cent afterwards.

The movement brought the overnight funding rate closer to the new 23 per cent MPR, narrowing the gap between the CBN’s policy benchmark and prevailing money market rates.

The FMDA said the decision to reset the MPR “marks more than a shift in policy stance,” noting that it “signals the beginning of a restoration in monetary policy transmission across financial markets.”

The impact of the rate cut has been even more pronounced at the longer end of the bond market, where yields have fallen sharply as investors reassess the interest-rate outlook.

Average bond yields declined from 16.5 per cent to 16 per cent between September 18 and 25. However, the 15-year bond recorded a much steeper 195 basis-point decline, with its yield falling from 16.35 per cent to 14.40 per cent.

Similarly, the yield on the 30-year bond dropped by 76 basis points from 15.29 per cent to 14.53 per cent.

The sharp move in long-term yields means investors holding longer-duration securities are recording significant valuation gains as the market adjusts to lower-rate expectations.

The FMDA explained that the development “reinforces the typical pattern in an easing environment, where long term bondholders benefit more from valuation gains due to higher duration sensitivity.”

According to the association, the broad decline in yields across the money and bond markets indicates that the CBN’s rate decision is beginning to translate into financial market pricing.

“Taken together, these developments point to a critical shift in Nigeria’s monetary framework,” the FMDA said, noting that the alignment between the MPR and market benchmarks was gradually influencing pricing across interbank funding and government securities.

“In this sense, the recent rate reset is not just about easing financial conditions, it is about restoring credibility to the policy transmission mechanism itself,” it added.