Yields across Nigeria’s fixed income market edged lower on Tuesday, September 23, 2025, after the Central Bank of Nigeria (CBN) delivered its first interest rate cut in five years.
The Monetary Policy Committee (MPC) trimmed the benchmark Monetary Policy Rate (MPR) by 50 basis points to 27.0 per cent, signaling a cautious shift toward monetary easing amid slowing inflation, stronger reserves, and a broadly resilient economy.
The move reverberated swiftly through the fixed income market, where yields on Treasury Bills (T-bills), Federal Government Bonds, and money market instruments softened as investors recalibrated their expectations of borrowing costs and liquidity conditions.
Data from the FMDQ Securities Exchange showed modest yet broad-based adjustments, with market participants responding in measured optimism to the CBN’s dovish turn.
T-bills market in mild but broad-based compression
The short-term government securities market registered the first signs of yield moderation. The benchmark 6-November-2025 and 9-October-2025 notes slipped by one basis point apiece to 16.47 per cent and 16.32 per cent. Other tenors, such as the 4-December-2025 and 5-February-2026 bills, saw their rates ease to 17.17 per cent and 17.50 per cent, respectively.
The most notable move was on the 7 July 2026 paper, where yields dropped sharply, signaling renewed investor appetite for longer short-term securities. The moderation across maturities nudged the average NT-Bills yield down by five basis points to 18.36 per cent, reflecting strengthening sentiment in the secondary market as the prospect of sustained easing takes hold.
Bonds drift lower
Longer-tenor government bonds exhibited relative calm, with yields largely stable but drifting lower in select maturities. The 17-March-2027 bond closed flat at 17.24 per cent, while the 20-March-2027 and 20-March-2028 issues settled marginally lower at 16.92 per cent and 15.87 per cent, respectively.
Benchmark curve analysis revealed slight pressures on the shorter end, particularly the JAN-2026 note, which expanded by six basis points, even as demand for ultra-long bonds like the JUN-2053 compressed yields by seven basis points. Overall, the average FGN bond yield edged down to 16.48 per cent, signaling that investors are cautiously locking into duration on expectations of lower funding costs.
A similar bullish tone extended to the Eurobond market, where average yields dropped by 10 basis points to 7.92 per cent, underscoring strong offshore demand for Nigerian paper against a backdrop of global rate cuts, including the U.S. Federal Reserve’s recent easing.
Money market liquidity signals mixed
The money market reflected divergent signals, shaped by both the CBN’s liquidity directives and OMO repayments totaling N254.9 billion.
The Overnight (O/N) rate fell by 103 basis points to 25.9 per cent, while the Open Repo (OPR) settled at 25.50 per cent, one percentage point lower. Nigerian Interbank Offered Rates (NIBOR) also mirrored the easing: overnight and one-month rates fell 14 and 8 basis points, respectively, though the six-month tenor rose 25 basis points, hinting at residual tightness in the medium term.
These moves suggest that while short-term liquidity is easing, structural bottlenecks remain, especially as the CBN balances its easing stance with new liquidity sterilization measures such as the 75 per cent Cash Reserve Ratio (CRR) on non-Treasury Single Account public sector deposits.
The futures market strengthens
Activity in the bond futures market pointed toward strong investor optimism on Nigeria’s medium- to long-term outlook. The three-month September 2025 futures closed at 114.59 per cent, the December 2025 contracts at 118.15 per cent, while the June 2026 futures rallied to 130.42 per cent.
According to analysts at Lagos-based Cordros Capital, the uptick suggests investors are betting on further rate cuts in the coming quarters, as inflation continues to retreat and growth momentum stabilizes.
The policy backdrop
The MPC justified its first policy easing since 2020 on improving fundamentals. Headline inflation slowed for a fourth consecutive month to 20.12 per cent in August, down 176 basis points from July, aided by currency stability, restrained fuel prices, and tight policy in preceding quarters. The economy also recorded stronger growth, with Q2 2025 GDP rising 4.23 per cent year-on-year compared to 3.13 per cent in Q1. External reserves climbed to $43.05 billion by mid-September, offering more than eight months of import cover, while the current account surplus widened significantly.
The MPC also adjusted the asymmetric corridor around the MPR to +250/-250 basis points (from +500/-100bps) and lowered the CRR for deposit money banks to 45 per cent (from 50 per cent), freeing additional liquidity for credit growth. The liquidity ratio was held at 30 per cent.
Market implications
Analysts believe the rate cut marks the start of a measured easing cycle. Cordros Capital noted that “the dovish pivot strengthens monetary policy transmission, mitigates risks of currency speculation, and reinforces the disinflationary trend,” adding that headline inflation could fall toward 18 per cent by October, potentially paving the way for a deeper cut at the November MPC meeting.
For the fixed income market, the immediate implication is a compression in yields across the curve. Short-term instruments, particularly OMO bills and NTBs, are expected to benefit from renewed demand as liquidity improves, flattening the curve. Medium-dated bonds are poised for sharper yield declines relative to the long end, where elevated fiscal borrowing needs may temper the pace of adjustment.
Corporate issuers also stand to gain, as falling sovereign yields cascade into lower borrowing costs, encouraging refinancing activity. In the equities market, moderating fixed income returns may spur portfolio rebalancing into risk assets, reinforcing the Nigerian Exchange’s strong performance this year.
Investor takeaway
Tuesday’s rate cut signals a turning point in Nigeria’s monetary policy stance. The decline in yields across T-bills, bonds, and the money market underscores growing investor confidence that easing will continue as inflation moderates and reserves strengthen. Yet, the cautious adjustments in longer-dated securities reveal persistent concerns about fiscal risks and debt sustainability.
For investors, the message is clear: the fixed income market is entering a bull phase, characterized by stronger demand for duration, lower funding costs, and a recalibration of yield expectations. But the pace and depth of this rally will hinge on whether the CBN sustains its dovish tilt at its November meeting.
- Key yields & policy moves at a glance
- MPR cut: 50bps to 27.0% (first cut since 2020).
- Asymmetric corridor: Narrowed to +250/-250bps (from +500/-100bps).
- CRR (Deposit Money Banks): Reduced to 45% (from 50%).
- CRR (non-TSA public deposits): Introduced at 75% to sterilize liquidity.
- Inflation: Eased to 20.12% in August (from 21.88% in July).
- GDP growth: Q2 2025 at +4.23% y/y (vs. +3.13% in Q1).
- Reserves: Rose to $43.05bn (8.3 months import cover).
- Market Snapshot (Sept 23, 2025):
- T-bills: Avg. yield ↓ 5bps to 18.36%.
- FGN Bonds: Avg. yield ↓ 1bp to 16.48%.
- Eurobonds: Avg. yield ↓ 10bps to 7.92%.
- Money Market: O/N ↓ 103bps to 25.9%; OPR ↓ 100bps to 25.5%.
- Futures: June 2026 10-yr FGN futures ↑ to 130.42%, signaling optimism.
