Nigerian Bonds Yield Drops on Inflation, Interest Rate Signal
The Nigerian government bonds rallied in the secondary market as new inflation trend provides additional insight towards interest rate expectations in the first quarter.
The benchmark yield reduced below 17%, indicating heightened confidence and robust demand from domestic investors in local currency fixed-income instruments.
The statistics office reported that the headline inflation rate accelerated to 15.15% in December, a lower consumer price index figure in contrast to Broadstreet projections of an average of 30%.
The figure is expected to be factored in spot rates pricing across primary market auctions.
Analysts said the monetary authority and Debt Management Office may have already accommodated the disinflation reversal – having hiked spot rates on borrowing instruments in the latter part of 2025.
Unlike Nigeria’s Central Bank spot rates pricing, the Debt Management Office (DMO) was noted for keeping rates on bonds significantly lower. But in a surprise event, the authority also hiked marginal rates on 5-and 7-year reopened bonds in December.
The inflation reversal has reduced the real return on bonds to 11.85%, given that the monetary policy rate has remained at 27%, chasing a 15.15% inflation figure.
Broadstreet analysts’ consensus is that there will be yield repricing in the fixed income market as market had anticipated the beginning of monetary easing.
Apparently, the outlook, expectations and consensus might have been diluted with a spike in the consumer price index, which actually came below gory projections from Broadstreet.
The market anticipated the inflation rate to surpass 30% due to base effects and year-end spending, but the released figure, which has triggered discussion among experts, was half of the estimated figure.
In the market, investors increased their bets on local bonds ahead of the DMO monthly auction. Demand surfaced across the short and belly of the curve, suggesting a move to lock in yield before the primary market auction.
Hence, the average yield declined by -4 bps to close at 16.76%. Market activity was concentrated at the short (-10 bps) and mid (-2 bps) end segments of the curve.
Meanwhile, there was muted activity at the long end. Notably, demand for the 17-Apr-29 (-33 bps), 21-Feb-31 (-35 bps) and 15-May-33 (-52 bps) drove sentiments.
Yields at the belly of the curve closed between 16.20% and 17.40%. Fixed-income market analysts expect this trend to continue in the near term. Demand and supply dynamics will drive yield movements going forward. Naira Drops as Foreign Payments Surpass U.S. Dollar Volume
