Treasury bills, FGN bonds beat inflation as disinflation boosts real returns for investors

Nigeria’s fixed-income market has entered a rare phase where government securities are once again generating returns above inflation, as easing consumer prices and elevated sovereign yields combine to restore positive real returns for investors.

The latest Consumer Price Index (CPI) report released by the National Bureau of Statistics (NBS) showed headline inflation eased marginally to 15.91% in June 2026 from 15.93% in May, ending three consecutive months of increases.

The moderation means investors in Treasury bills and Federal Government of Nigeria (FGN) bonds are once again earning returns that exceed inflation, reversing a prolonged period during which fixed-income investments failed to preserve purchasing power.

However, the same cannot yet be said for retail-focused FGN Savings Bonds, whose latest offer remains marginally below the inflation rate.

What they are saying

The moderation in inflation has coincided with elevated government borrowing costs, creating positive real returns across most sovereign fixed-income instruments.

• At the June FGN bond auction, the marginal rates for the January 2035 and April 2037 bonds settled at 18.34% and 18.35% respectively, implying positive real returns of about 244 basis points over June’s headline inflation of 15.91%.
• Similarly, the one-year Treasury bill stop rate at the July 15 auction was 17.66%, remaining comfortably above inflation, while the July FGN Savings Bond, with a maximum coupon of 15.716%, still falls slightly below inflation.

Abiodun Ogunniyi, Head of Research at GTI Limited, said current market pricing clearly favours Treasury bills over other government securities.

• “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.”

On inflation-adjusted returns, he said the gap has become even clearer.

• “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 the July FGN Savings Bond still does not provide a meaningful real return.

• “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.”

However, Ogunniyi noted that the retail-focused instrument still has a role to play.

• “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.”

More insights

The return of positive real yields reflects two converging trends: inflation has started to moderate while government borrowing costs remain elevated, creating one of the strongest inflation-adjusted return environments investors have seen in recent years.

• Trading activity has also accelerated as investors reposition portfolios. Treasury bill turnover rose 137.49% to N1.51 trillion, while FGN bond turnover climbed 75.91% to N1.20 trillion during the week ended June 19.
• The Financial Markets Dealers Association (FMDA) said inflation expectations and domestic liquidity conditions continue to influence pricing even as several major central banks globally begin shifting towards monetary easing.
• Looking ahead, analysts believe the current window of elevated real yields may not last.

Standard Chartered expects the Monetary Policy Rate to end 2026 at 25%, with Chief Economist Razia Khan saying:

• “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 its wait-and-see stance in July but believes sustained disinflation could pave the way for the first rate cut in September.
• S&P Global, however, has raised its average inflation forecast for 2026 to 16.9%, warning that higher energy prices could narrow the positive real return currently available on government securities.

Ogunniyi added that strong investor demand for longer-dated Treasury bills reflects this market outlook.

• “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 at the July 15 auction, subscriptions for the one-year Treasury bill exceeded the N400 billion on offer by more than seven times.

What you should know

Positive real returns occur when an investment yield exceeds the inflation rate, allowing investors to increase their purchasing power rather than merely keeping pace with rising prices.

• Following June’s inflation reading of 15.91%, long-dated FGN bonds and Treasury bills have moved back into positive real return territory after an extended period of negative inflation-adjusted returns.
• According to GTI Limited, Treasury bills—particularly the 364-day instrument—currently provide the best combination of yield, liquidity and inflation protection.
• However, FGN Savings Bonds remain slightly below inflation, underscoring the growing divergence between institutional fixed-income products and retail savings instruments.

With markets increasingly expecting monetary easing later this year, investors seeking to lock in today’s higher yields may have a limited window before interest rates begin to decline.