Yields on Nigerian government bonds increased last week as investors adopted a more cautious approach to the fixed-income market, amid growing uncertainty over the direction of interest rates and inflation.

The average yield on Federal Government of Nigeria (FGN) bonds rose by 11 basis points week-on-week to 15.92 per cent, reflecting weaker demand in the secondary market.

The movement came shortly after the Central Bank of Nigeria (CBN) reduced its benchmark interest rate by 3.5 percentage points, prompting investors to reassess the returns they can expect from government securities in the months ahead.

Bond prices and yields generally move in opposite directions. As demand for existing bonds declines, their prices fall, resulting in higher yields.

CBN Rate Cut Changes Market Expectations

Market analysts said the recent monetary policy easing has introduced fresh uncertainty into the fixed-income market, with investors weighing the possibility of further rate reductions against the relatively attractive yields currently available.

Meristem Securities said the lower policy rate is likely to influence investors’ expectations for bond yields as the market moves into the final quarter of the year.

Inflation is also playing an important role in investment decisions. Nigeria’s headline inflation rate fell to 15.39 per cent in August 2026, strengthening expectations that inflationary pressures could continue to ease.

While declining inflation could improve economic stability, it may also lead investors to reassess the returns they require from fixed-income assets.

Performance Varies Across Bond Maturities

Trading across government securities was mixed during the week, with investor demand differing from one maturity to another.

The yield on the five-year FGN bond increased by 10 basis points to 16.25 per cent as selling pressure returned to the market.

Conversely, increased demand for the 10-year bond pushed its yield down by six basis points to 15.95 per cent.

Yields on the three-, seven- and 20-year securities remained unchanged at 16.10 per cent, 16.07 per cent and 14.66 per cent respectively.

The contrasting movements suggest that investors are not abandoning government securities altogether but are instead adjusting their portfolios according to expectations around interest rates, inflation and potential returns.

Elevated Yields Could Renew Investor Interest

Despite the recent increase, FGN bond yields remain above their levels at the beginning of the year, with different maturities currently trading between 0.68 and 1.04 percentage points higher than their respective year-opening levels.

Cowry Asset Management expects weak demand to continue putting pressure on bond prices in the near term, potentially keeping yields elevated.

However, analysts believe the comparatively high yields could eventually encourage investors to return to the market, particularly if liquidity conditions improve.

Investors are therefore expected to continue repositioning across the yield curve as they gain greater clarity on the direction of monetary policy and inflation.

For now, the Nigerian bond market remains caught between cautious investor demand following the CBN’s rate cut and the attraction of relatively high yields, with future market movements likely to depend heavily on inflation, liquidity and interest-rate expectations.

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