For the first time in several years, Nigerian Treasury bills and Federal Government bonds have delivered positive real returns to investors, as the country's disinflation trend continues to gain traction. According to data from Nairametrics, the average yield on one-year Treasury bills stood at 22.5% in June 2026, while the headline inflation rate dropped to 21.8% in the same month, resulting in a real return of 0.7%.
Disinflation Trend Accelerates
Nigeria's inflation rate has been on a steady decline since peaking at 34.2% in June 2024. The National Bureau of Statistics reported that the consumer price index (CPI) rose by 21.8% year-on-year in June 2026, down from 22.4% in May 2026. This marks the twelfth consecutive month of declining inflation, driven by tighter monetary policy, improved food supply, and base effects.
The Central Bank of Nigeria's aggressive rate hikes, which brought the monetary policy rate to 27.5% by early 2025, have helped curb demand-pull inflation. Additionally, the harvest season has boosted food supply, easing food price pressures. The disinflation has been broad-based, with core inflation falling to 19.5% and food inflation to 23.2% in June 2026.
Fixed Income Instruments Outperform
Investors in fixed income securities have reaped the benefits. The average yield on one-year Treasury bills rose from 18.5% in January 2026 to 22.5% in June 2026, according to FMDQ data. Similarly, yields on 10-year FGN bonds averaged 19.8% in June, up from 17.2% at the start of the year. These yields have consistently exceeded the inflation rate since March 2026, when the inflation rate first fell below the average T-bill yield.
"For the first time in over three years, investors in Nigerian government securities are earning positive real returns," said a fixed income analyst at Lagos-based investment firm, Chapel Hill Denham. "This is a significant milestone and could attract more foreign portfolio investors back to the market." According to the analyst, foreign participation in the Nigerian bond market has increased by 15% in the second quarter of 2026 compared to the first quarter.
Impact on Investors and the Economy
The positive real returns have boosted investor confidence in naira-denominated assets. The Nigerian Stock Exchange's bond index has risen by 8.5% year-to-date, reflecting increased demand for fixed income securities. Retail investors have also shifted from money market funds to direct T-bill investments, seeking higher yields.
However, the high yields have increased the government's borrowing costs. The Debt Management Office reported that the average cost of domestic debt rose to 18.2% in June 2026, up from 15.4% in December 2025. This has implications for fiscal sustainability, as interest payments consume a larger share of government revenue.
Economists caution that while disinflation is welcome, the real returns remain modest. "A 0.7% real return is still low by historical standards," said Dr. Ayo Teriba, an independent economic analyst. "For sustained investment, we need real returns of at least 3-5% to compensate for risk and encourage long-term savings."
Outlook for Fixed Income Investors
Looking ahead, analysts expect inflation to continue declining, potentially reaching 18-19% by December 2026, according to the CBN's forecast. If yields remain elevated, real returns could improve further. The CBN has signaled that it may begin to ease monetary policy in the fourth quarter of 2026, which could lead to lower yields. However, the timing will depend on inflation trends and external factors such as global oil prices and capital flows.
Investors are advised to lock in current high yields by investing in longer-dated bonds, as yields may decline when the CBN starts cutting rates. The FGN bond auction in July 2026 saw strong demand, with a bid-to-cover ratio of 3.2, indicating sustained appetite for government securities.
