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Nigerian government bond yields rose in October despite a sharp increase in liquidity across the banking system, highlighting investor concerns over inflation and interest rates even as billions of naira in debt repayments are set to return to the market.

According to analysis by EBC Financial Group, cash in the banking system increased by 57 per cent in October, climbing to N7.373 trillion from N4.703 trillion in September. However, the average yield on government bonds also rose during the period, reaching 16.18 per cent from 15.95 per cent.

The development suggests that abundant liquidity alone may not be sufficient to drive down borrowing costs, as investors continue to weigh inflation risks and expectations for future interest rates.

Market participants are now looking ahead to November, when approximately N10.85 trillion worth of securities are scheduled to mature. The figure includes N8.927 trillion in central bank securities and N1.919 trillion in Treasury bills, according to data from the Financial Markets Dealers Association (FMDA).

The repayments significantly exceed the Federal Government's proposed N2 trillion bond offer scheduled for 16 November, raising the prospect that some of the returning cash could be reinvested into longer-term government debt.

David Precious, Senior Market Analyst at EBC Financial Group, said investor decisions on where to deploy the cash would be critical to determining the outcome of the upcoming auction.

“When short-term securities mature, investors receive cash and choose between another short-term security and a bond,” Precious said. “A bond locks the money in for several years, so investors need a return that makes that worthwhile. If enough of the cash comes to the bond sale, buyers compete for the same bonds, and the government may be able to raise the N2 trillion at a lower return.”

The current average bond yield of 16.18 per cent serves as a benchmark for the forthcoming auction, although the final rate accepted by the government could be either higher or lower depending on investor demand.

Analysts note that investors purchasing long-term bonds must consider how future inflation could erode the value of fixed interest payments. As a result, some may continue to demand higher yields despite the increase in available liquidity.

The outlook also comes after the Central Bank of Nigeria (CBN) adjusted its policy rate to 23 per cent at its September 2026 monetary policy meeting, a move aimed at aligning the policy framework more closely with prevailing market conditions.

While large-scale repayments are expected to inject considerable liquidity into the financial system, not all of the funds may flow into the bond market. Investors who opt to reinvest in short-term Treasury bills or central bank instruments would leave demand for bonds largely unchanged.

Additionally, some repayments may occur after settlement of the November bond auction, potentially limiting the amount of cash immediately available for reinvestment.

The Debt Management Office's auction calendar remains provisional, meaning the final amount raised could differ from the proposed N2 trillion target. Market participants will therefore be closely watching both the volume sold and the yields accepted by the government.

Financial analysts say the auction will provide an important gauge of investor confidence and long-term inflation expectations ahead of the next Monetary Policy Committee meeting scheduled for 23 and 24 November.

“The rate accepted at the auction becomes the interest the government pays each year until the bond matures, so a rate agreed in November can stay in the budget for many years,” Precious said. “Investors weigh that same stretch of time when they decide what return to ask for, which is why one month of repayments can influence terms that last for years.”

The outcome of the auction is also expected to offer insight into the government's strategy of extending debt maturities to support long-term infrastructure financing while managing borrowing costs in a high-interest-rate environment.