Bonds Yield Falls, Real Interest Rate Widens on Disinflation
The Nigerian government bond traded on a bullish note in the secondary market, with yields declining across the curve. Demand for debt papers heightened on Wednesday, a positioning that was influenced by the spot rate outlook at the Debt Office Q4 auctions.
As inflation falls, and the market hopes for interest rate cuts to drive growth, investors in the Nigerian debt market locked in yields on naira assets.
Analysts said spot rate pricing on local bonds supply will be impacted by fast-changing and perhaps improving macroeconomic indicators, which are expected to lower debt costs.
The real interest rate has widened to about 9%, reflecting a relatively high interest rate environment and successive inflation deceleration.
The benchmark interest rate was reduced to 27%, and inflation has fallen by 210 basis points to 18.02%, leaving investors with a real return of 8.98%. “Lower inflation and an expected policy rate cut are likely to drive further yield compression across the Naira credit market.
“While the curve may remain inverted, we expect a sharper adjustment at the short end of the curve,” analysts at CardinalStone Securities Limited said in a commentary note.
In the secondary market, trading activities on local bonds opened cautiously but turned positive as investors reacted to September inflation print.
Notably, the FGN bonds with 2032, 2033, and 27-Mar-2035 maturities recorded declines compared to the previous close. Consequently, the average benchmark yield slipped 3bps to 15.98%.
Fixed income market analysts expect investors to respond positively to the September inflation data, supported by expectations of a further rate cut at the November MPC meeting.
According to the National Bureau of Statistics, Nigeria’s headline inflation eased to 18.02% YoY in September 2025 (from 20.18% in Aug 2025), marking the first time in three years that inflation has fallen below the 20% threshold.
The moderation was largely attributed to higher crude oil output, a decline in prices of key food staples following the onset of the harvest season, and a relatively stable naira during the period. On a month-on-month basis, inflation rose by 0.72%, slightly below the 0.74% recorded in August 2025. Insurance Index Dips as Investors Sell AXA Mansard, AIICO
