Nigerian Fixed Income Market Shows Recovery Amid Cautious Trading

The Nigerian fixed income market has experienced positive momentum recently, with both local and international investors showing renewed confidence. This was especially evident in the long-term securities segment, where buy-side interest strengthened significantly.

Last week’s trading session closed with government bond yields dropping by six basis points to an average of 19%, ahead of the anticipated second-quarter 2025 bond issuance by the Debt Management Office (DMO).

Market participants expect the DMO to intensify borrowing efforts to address Nigeria’s fiscal revenue gaps, which have been exacerbated by fluctuations in global commodity markets, particularly as oil prices have fallen below the 2025 budget projections.

Trading activity revealed strong buying interest in short-term securities, with yields in this segment declining by 16 basis points overall. The January 2026 and March 2026 bonds performed exceptionally well, with yields decreasing by 68 and 106 basis points, respectively. However, some international investors reduced their positions in longer-dated securities, notably pushing the yield on the January 2035 bond up by 5 basis points.

As the market awaits the DMO’s second-quarter borrowing calendar, trading has remained cautious and relatively quiet. Limited activity has been focused primarily on medium-term maturities, particularly the February 2031 and May 2033 bonds. The May 2033 bond attracted modest demand early in the week, resulting in slight yield compression, though market analysts note that many investors are maintaining a wait-and-see approach.

Market analysis indicates that international investors reduced their exposure to certain short-term instruments, particularly the January 2026 bond. This contributed to yield increases across the short-term segment, which rose by 26 basis points overall, with the January 2026 bond specifically seeing a 132 basis point increase.

Meanwhile, yields decreased in both the mid-term (-3 basis points) and long-term (-2 basis points) segments, driven by demand for the February 2031 (-12 basis points) and June 2053 (-16 basis points) bonds. Despite these mixed movements, the overall market saw yields decline by six basis points, settling at 19.0%.

“Over the medium term, we expect a moderation in bond yields, influenced by an anticipated dovish monetary policy stance and sustained improvement in demand and supply fundamentals in Q2 2025,” Cordros Capital Limited said in a note.

Despite analysts’ forecasts of a potential softening in monetary policy, persistent inflationary trends continue to present significant challenges to this outlook.

Nigeria’s Consumer Price Index (CPI) data for March 2025 revealed headline inflation climbing to 24.23%, surpassing both February’s rate of 23.18% and our internal projection of 23.40%. This marks a reversal of the brief disinflation trend observed in the two months following the CPI rebasing initiative.

The month-over-month increase of 1.05 percentage points can be attributed to several key factors, including the ongoing depreciation of the national currency, seasonal demand-driven price increases, and higher Premium Motor Spirit (PMS) costs.

This inflationary surge may require monetary authorities to maintain a more restrictive stance than previously anticipated.