Nigeria’s fixed-income market has entered a more favourable period for investors as government securities begin delivering returns above inflation, offering renewed protection for purchasing power after a prolonged period of negative real yields.
The shift follows a slight moderation in consumer price growth, combined with still-high government borrowing costs that have pushed yields on Treasury bills and Federal Government of Nigeria (FGN) bonds above the current inflation rate.
Data from the National Bureau of Statistics (NBS) showed that headline inflation eased marginally to 15.91 percent in June 2026, from 15.93 percent in May, marking the end of three consecutive months of increases.
The decline, though modest, has improved the attractiveness of fixed-income investments, allowing holders of several government-backed securities to earn inflation-adjusted gains rather than simply preserving their capital against rising prices.
However, the positive trend has not extended fully to all government instruments. Retail-focused FGN Savings Bonds remain slightly below inflation, meaning investors in that category are yet to achieve meaningful real returns.
Treasury Bills Lead Fixed-Income Rally
The combination of easing inflation and elevated sovereign yields has created one of the strongest real-return environments for government securities in recent years.
At the June FGN bond auction, marginal rates for the January 2035 and April 2037 bonds settled at 18.34 percent and 18.35 percent respectively. These yields represent a positive real return of roughly 244 basis points above June’s inflation rate of 15.91 percent.
Similarly, the one-year Treasury bill recorded a stop rate of 17.66 percent at the July 15 auction, remaining comfortably above inflation.
In contrast, the July FGN Savings Bond, which offered a maximum coupon of 15.716 percent, remained slightly below the inflation rate.
Abiodun Ogunniyi, Head of Research at GTI Limited, said current market conditions favour Treasury bills among available government-backed investment options.
“Among the three instruments — Treasury bills, FGN bonds and Savings Bonds — Treasury bills currently provide the highest return. So, if your objective is to maximise returns within the fixed-income market, Treasury bills offer the best value at the moment.”
According to Ogunniyi, Treasury bills currently provide stronger inflation-adjusted gains compared with conventional bonds.
“For conventional FGN bonds, the real return is roughly 2% to 2.5%, while Treasury bills offer a real return of about 3% to 3.5%, depending on the tenor. The 364-day Treasury bill is currently yielding around 20% to 21%, making it particularly attractive for investors seeking both competitive returns and relatively short investment horizons.”
He added that FGN Savings Bonds are currently less appealing from a real-return perspective.
“At current inflation of 15.91%, those returns are either below or only marginally below inflation, meaning they do not provide a meaningful positive real return. I’m not particularly enthusiastic about Savings Bonds at current rates.”
Despite the weaker inflation-adjusted performance, Ogunniyi noted that the savings product still serves an important purpose by encouraging investment participation among retail investors.
“Savings Bond serves a distinct policy purpose—encouraging a long-term savings culture among retail investors—and it still compares favourably with a typical fixed deposit account paying around 5% annually.”
Investors Increase Exposure to Government Securities
The improved outlook for fixed-income investments has encouraged stronger market activity as investors adjust their portfolios in response to changing inflation and interest rate expectations.
During the week ended June 19, Treasury bill turnover increased by 137.49 percent to N1.51 trillion, while FGN bond turnover rose by 75.91 percent to N1.20 trillion.
The Financial Markets Dealers Association (FMDA) said inflation expectations and domestic liquidity conditions remain key factors influencing market pricing, even as some major global central banks begin moving towards lower interest rates.
Analysts, however, warn that the current opportunity may not last indefinitely.
Standard Chartered expects Nigeria’s Monetary Policy Rate (MPR) to decline by the end of 2026, forecasting a 150 basis point reduction that would take the rate to 25 percent.
Chief Economist at Standard Chartered, Razia Khan, said:
“We now see scope for 150 basis points of policy easing in 2026, taking the monetary policy rate to 25% at year-end.”
Cowry Research also expects the Monetary Policy Committee to maintain a cautious approach in July, but believes continued inflation moderation could create room for the first rate cut in September.
Meanwhile, S&P Global has raised its average inflation forecast for 2026 to 16.9 percent, warning that higher energy costs could reduce the positive real returns currently available in government securities.
Strong Demand for Longer-Term Treasury Bills
Ogunniyi said investor interest in longer-dated Treasury bills reflects expectations that current high yields may become less available once monetary policy begins to ease.
“The yield premium at the long end of the Treasury bill curve is one of the reasons the 364-day bill has attracted extraordinary demand at recent auctions.”
He noted that demand for the one-year Treasury bill at the July 15 auction exceeded the amount offered by more than seven times, highlighting strong appetite among investors seeking attractive returns.
What the Current Market Means for Investors
Positive real returns occur when investment yields exceed inflation, allowing investors to increase their purchasing power rather than merely keeping pace with rising prices.
Following June’s inflation figure of 15.91 percent, Treasury bills and long-term FGN bonds have moved back into positive real return territory after an extended period of inflation-adjusted losses.
According to market analysts, Treasury bills—particularly the 364-day instrument—currently offer the strongest combination of yield, liquidity and inflation protection.
However, the advantage may be temporary. With expectations of monetary policy easing later in the year, investors looking to secure today’s higher yields may have a limited opportunity before borrowing costs and investment returns begin to decline.