Carry Trade Remains Intact as FPIs Inflow $18 Billion Into Nigerian OMO Assets

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Total Foreign Portfolio Investors (FPI) holdings in Open Market Operations (OMO) bills is currently estimated between $18.0 billion and $20.0 billion (excluding private placement structures), as the re-entry of domestic capital broadens the investor base and establishes a unified fixed-income yield curve.

Despite expected yield compression and the gradual convergence of OMO yields toward Nigerian Treasury Bill (NTB) rates, the carry trade remains attractive for international investors.

Banking channel data by CardinalStone indicates ongoing FPI dollar sales for Naira assets to lock in prevailing yields ahead of further compression.

The alignment of OMO and NTB yield profiles is not expected to trigger immediate FPI capital flight. Even when evaluated on standard NTB rates, real returns remain competitive when paired with modest expectations for exchange rate stability.

The Central Bank of Nigeria (CBN) recently overhauled its Open Market Operations (OMO) and discount window framework. The revision reverses the October 2019 ban, once again permitting individuals, domestic corporate entities, and non-bank financial institutions (NBFIs) to participate directly in both primary and secondary OMO markets via Deposit Money Banks (DMBs).

When implemented in late 2019, the restriction was intended to ring-fence high-yielding OMO bills exclusively for Foreign Portfolio Investors (FPIs) to attract foreign exchange inflows, prop up external reserves, and sterilize excess domestic banking liquidity.

Over time, however, OMO transformed primarily into an FX management anchor.

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