Reported by: Puis Althea | Edited by: Oravbiere Osayomore Promise.
Nigeria's fixed-income market has entered a new phase, offering investors something that has been scarce in recent years: real returns that outpace the inflation rate. For the first time in a prolonged period, Federal Government bonds and Treasury bills are generating yields that exceed the country's consumer price growth, allowing investors to preserve and grow their purchasing power in real, inflation-adjusted terms. The development comes as headline inflation eased marginally to 15.91 per cent in June 2026, down from 15.93 per cent in May, halting three consecutive months of increases, according to the National Bureau of Statistics.
The slight moderation in inflation, combined with elevated government borrowing costs, has created one of the strongest inflation-adjusted return environments investors have seen in recent years. At the June FGN bond auction, the January 2035 and April 2037 bonds cleared at marginal rates of 18.34 per cent and 18.35 per cent, respectively, translating to positive real returns of roughly 244 basis points above June's inflation rate. Likewise, the 364-day Treasury bill sold at the July 15 auction recorded a stop rate of 17.66 per cent, remaining comfortably ahead of inflation, according to data from multiple financial news outlets.
The return of positive real yields reflects two converging trends: inflation has started to moderate while government borrowing costs remain elevated, creating a rare opportunity for investors in sovereign fixed-income instruments. "Positive real returns make Treasury bills and government bonds attractive again because investors are rewarded in real, inflation-adjusted terms," said an emerging markets expert, Ike Ibeabuchi. Market activity has mirrored this renewed appetite, with Treasury bill turnover increasing 137.49 per cent to N1.51 trillion, while FGN bond turnover climbed 75.91 per cent to N1.20 trillion in the week ended June 19, reflecting stronger trading activity across the sovereign debt market.
However, the improvement has not extended to all government-backed instruments. The latest FGN Savings Bond, targeted mainly at retail investors, still offers a maximum coupon of 15.716 per cent, leaving it marginally below the prevailing inflation rate and resulting in a slightly negative real return. Abiodun Ogunniyi, Head of Research at GTI Limited, said Treasury bills currently offer the strongest value among Nigeria's government-backed fixed-income securities. "Among the three instruments — Treasury bills, FGN bonds and Savings Bonds — Treasury bills currently provide the highest return," Ogunniyi said. "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."
Analysts, however, caution that the current period of attractive inflation-adjusted returns may be temporary. A former central banker, Chukwunonso Iheoma, estimates the Monetary Policy Rate could fall to 25.5 per cent by the last quarter of 2025. Standard Chartered, on the other hand, expects the MPR to decline to 25 per cent by the end of 2026, with the bank now seeing room for 150 basis points of monetary easing this year. Cowry Research expects the Monetary Policy Committee to retain its cautious stance at its July meeting but believes sustained moderation in inflation could open the door to the first interest rate cut in September.
However, S&P Global has warned that rising energy prices could erode the positive real returns currently available on government securities. "Increases in fuel costs as a result of the war in the Middle East have driven up costs among sub-Saharan African companies, putting upwards pressure on inflation and likely bringing to an end the cycle of interest rate easing seen in a number of economies in the region," the agency warned. A Professor of Economics and Public Policy at the University of Uyo, Prof Akpan Ekpo, noted that the MPC would likely maintain the current rate because of the uncertainty created by the US-Iran conflict.
For now, investors in Nigerian government securities are enjoying a rare moment of positive real returns, with Treasury bills offering the strongest inflation-adjusted gains. But as analysts and economists have cautioned, the window of opportunity may not remain open indefinitely, and investors should remain vigilant about the risks posed by potential inflationary shocks and changes in monetary policy direction.
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