The Nigerian fixed income market offers investors what has been missing in recent years – real returns above inflation.
When investment returns exceed the rate of inflation, investors benefit because the value of their money increases in terms of purchasing power, not just face value. This is exactly what federal government bonds and Treasury bills now offer investors.
Headline inflation fell to 15.91 percent in June 2026 from 15.93 percent in May, stopping three straight months of growth, according to the National Bureau of Statistics.
The small decline was enough to lift some government debt yields above inflation, allowing investors to maintain and increase their purchasing power after a long period of negative real yields.
However, the improvement did not apply to all products. The latest FGN savings bond, aimed primarily at retail investors, still offers a maximum coupon of 15.716 percent, making it marginally below the prevailing rate of inflation.
However, higher government borrowing costs have contributed significantly to the return to positive real yields. At the June FGN bond auction, bonds issued in January 2035 and April 2037 were sold at cap rates of 18.34 percent and 18.35 percent, resulting in positive real yields of about 244 basis points above the June inflation rate.
Likewise, the 364-day Treasury bill auctioned on July 15 had a stop rate of 17.66 percent, still ahead of inflation.
Investor appetite is intensifying as market participants shift their portfolios.
Treasury bill turnover increased by 137.49 percent to N1.51 trillion and FGN bond turnover increased by 75.91 percent to N1.20 trillion in the week ended June 19, reflecting increased trading activity in the sovereign debt market.
“Positive real yields make Treasuries and government bonds attractive again as investors receive real, inflation-adjusted rewards,” emerging markets expert Ike Ibeabuchi said.
The Financial Markets Dealers Association said pricing in the domestic fixed-income market continues to be driven by inflation expectations and liquidity conditions, even as some major central banks around the world begin to move toward easing monetary policy.
Analysts, however, warn that the current period of attractive inflation-adjusted yields may prove temporary. Former central bank governor Chukwunonso Iheoma predicts that the monetary policy rate will fall to 25.5% by the last quarter of 2025.
Standard Chartered, on the other hand, expects MPR to fall to 25 percent by the end of 2026. Chief economist Razia Khan said the bank now sees room to ease monetary policy by 150 basis points this year. Abuja-based bond analyst Joshua Tan agreed with Khan, but stressed that the upcoming rise in energy prices could undermine positive expectations of lower inflation and lower interest rates this year.
Cowry Research expects the Monetary Policy Committee to maintain its cautious stance at its July meeting, but believes a sustained slowdown in inflation could open the door to a first rate cut in September.
But S&P Global warned that rising energy prices could undermine the positive real yields currently available on government securities: “Increasing fuel prices as a result of the war in the Middle East have driven up costs among sub-Saharan African companies, putting upward pressure on inflation and likely ending the cycle of interest rate easing seen in a number of economies in the region.”
Akpan Ekpo, a professor of economics and public policy at the University of Uyo, noted that the MPC is likely to maintain its current pace due to the uncertainty created by the US-Iran conflict.
According to GTI Limited, treasury bills, especially 364-day instruments, currently provide the best combination of yield, liquidity and inflation protection. In contrast, FGN savings bonds remain slightly below inflation, highlighting the growing gap between institutional fixed income instruments and retail-focused savings products.