Nigerian stocks face selloff risk as CBN opens OMO to retail investors

The Central Bank of Nigeria has recently opened Open Market Operations (OMO) securities to retail investors, potentially impacting the Nigerian stock market. Under a new policy announced on August 12, 2026, individuals, companies and non-bank financial institutions can now participate in primary and secondary OMO markets through Deposit Money Banks.

This reversal of a 2019 restriction follows a strong appetite for high-yielding fixed-income securities among investors. However, questions remain about OMO's potential competition with equities on the Nigerian Exchange (NGX). OMO is a tool used by the CBN to manage liquidity in the financial system, while Treasury Bills are also short-term fixed-income securities.

Although both serve different purposes, they compete for investors seeking low-risk, short-term returns. The CBN can adjust the amount of OMO paper issued based on desired liquidity levels, creating a potential impact on OMO yields. With strong demand for OMO securities, yields have been higher than Treasury Bills, offering an additional high-yielding option for investors who previously concentrated on Treasury Bills, deposits, and other money-market instruments.

Analysts predict that broader participation in OMO could put some downward pressure on yields, depending on the CBN's liquidity-management objectives. If issuance remains limited, yields may compress, but elevated rates could persist if the CBN continues accepting large volumes to maintain liquidity levels. Although the reopening of OMO could increase competition for investor funds, analysts do not expect it to significantly impact Nigerian equities.

Instead, OMO is more likely to provide an alternative portfolio option with lower risk compared to equities. Strong companies with growth potential and dividends may still attract investors despite OMO's attractive yield, while weaker or overvalued stocks may struggle to justify the risk taken by equity holders.