CBN’s OMO Reopening Could Shift Investor Funds From Stocks to High-Yield Securities
The reopening of the Central Bank of Nigeria’s Open Market Operations (OMO) securities to individual and corporate investors could intensify competition for funds in Nigeria’s financial markets, particularly if OMO yields remain significantly above those of other short-term investment instruments.
The CBN, through a circular dated August 12, 2026, restored access to the OMO market for individuals, companies and non-bank financial institutions. Investors can now participate in both primary and secondary OMO transactions through Deposit Money Banks.
The move effectively reverses a restriction introduced in 2019, when access to OMO securities was largely limited to institutional investors.
The policy comes at a time when Nigerian investors are showing strong demand for fixed-income instruments offering attractive returns.
OMO offers a significant yield advantage
OMO securities are used by the CBN as a monetary policy tool to manage liquidity in the financial system. When the apex bank needs to reduce excess liquidity, it sells OMO bills to investors, thereby withdrawing naira from circulation.
Although OMO bills and Treasury Bills serve different purposes, they compete for investor funds because both offer relatively short-term fixed-income returns.
The difference in yields has recently been significant.
At the Treasury Bills auction held on August 12, investors submitted about ₦4.4 trillion in bids against ₦700 billion on offer. The 91-day bill cleared at 16.30%, while the 182-day and 364-day bills closed at 16.50% and 17.59%, respectively.
The following day, demand for OMO securities reached approximately ₦4.93 trillion against an initial offer of ₦600 billion.
The CBN allotted about ₦2.60 trillion, with the 103-day OMO bill clearing at 20.39% and the 138-day instrument at 20.01%.
This placed OMO yields roughly 3.5 to 4 percentage points above comparable Treasury Bills.
For investors seeking relatively low-risk, short-term returns, the yield differential could make OMO securities increasingly attractive.
Could OMO put pressure on Nigerian stocks?
The reopening of OMO to retail investors could create an additional source of competition for funds currently invested in equities.
However, analysts do not expect the policy to automatically trigger a widespread sell-off on the Nigerian Exchange (NGX).
According to investment analysts cited in the report, the impact on equities will depend largely on where OMO yields settle as participation expands.
Greater investor demand could eventually push OMO yields lower. At the same time, the CBN could continue issuing and accepting larger volumes of OMO securities as part of its efforts to absorb excess liquidity.
Israel Adebomi, Head of Investment Banking at STL Capital & Advisory Limited, said stronger demand for OMO securities would not necessarily result in an immediate decline in yields, noting that the CBN’s supply decisions would also influence pricing.
Isaac Osaro, Head of Investment Research at First Securities Brokers Limited, however, expects wider participation to create some downward pressure on yields as more investors compete for the securities.
Strong stocks could remain attractive
The impact on equities is therefore likely to be uneven.
Stocks offering weak earnings growth, limited dividends or valuations that appear expensive could come under greater pressure if investors can obtain returns approaching 20% from relatively lower-risk OMO securities.
On the other hand, companies with strong earnings growth, attractive dividend yields and potential for capital appreciation may continue to attract investors.
The fundamental issue for investors will be the risk-return trade-off.
A fixed-income instrument yielding around 20% could make a stock offering an expected return of 15% to 20% considerably less attractive because equities carry substantially higher market risk.
However, stocks capable of delivering significantly higher total returns could still justify the additional risk.
Portfolio diversification could become the bigger story
Rather than creating a wholesale shift away from equities, the reopening of OMO could give domestic investors another instrument for managing their portfolios.
The development could also increase the importance of stock selection on the NGX, particularly as investors become more sensitive to the returns they can obtain from lower-risk alternatives.
If OMO yields remain elevated, companies with strong financial performance and credible growth prospects may continue to command investor interest, while weaker stocks could struggle to compete for capital.
For the Nigerian market, the CBN’s decision therefore introduces another variable into the investment landscape. The extent to which it affects equities will depend on OMO yields, the volume of securities the CBN makes available and how investors balance the potential returns from fixed income against the higher risks and potentially higher rewards of equities.
Source: Nairametrics report.
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