Nigeria’s fixed-income market delivered some of the most attractive sovereign yields in recent history during the first quarter of 2026 before a gradual decline in rates compressed returns across Treasury bills and Federal Government bonds.
A review of primary market auction data from the Central Bank of Nigeria (CBN) and the Debt Management Office (DMO) showed that investors who entered the market early in January secured the strongest risk-free naira returns before the monetary easing cycle began.
The elevated yields were driven by the Federal Government’s aggressive domestic borrowing programme to finance its record fiscal deficit, combined with the CBN’s tight liquidity management strategy aimed at curbing inflationary pressures.
According to the data, the Federal Government’s fiscal deficit stood at N23.85 trillion before later rising to N29.20 trillion, forcing authorities to offer attractive yields to attract investor participation.
Auction records from eight Treasury Bill Primary Market Auctions (PMAs) and three Federal Government bond auctions conducted between January and March 2026 revealed a clear market trend: January represented the peak of the yield cycle, February marked the turning point, while March settled into a lower and more stable yield environment.
The 364-day Treasury bill recorded the highest stop rate of the quarter at 18.47 percent during the January 7 auction, making it the best-performing risk-free naira instrument during the quarter.
The 91-day Treasury bill remained relatively stable throughout the period, trading within a narrow range of 15.80 percent to 15.95 percent across all eight auctions, reflecting steady short-term market expectations.
The 182-day bill reached a peak stop rate of 16.65 percent in January and February before moderating to 16.42 percent by the March 25 auction.
On the bond market side, the 18.50% FGN FEB 2031 bond delivered the quarter’s highest yield-to-maturity stop rate at 17.62 percent during the January 26 DMO auction.
The auction attracted total demand of N2.25 trillion across three bond instruments, highlighting strong investor appetite for sovereign debt.
The 19.00% FGN FEB 2034 bond experienced the sharpest yield compression during the quarter. Its stop rate declined from 17.50 percent in January to 15.50 percent in February, representing a 200-basis-point drop within a single auction cycle.
Total subscriptions for FGN bond auctions in Q1 2026 reached N5.88 trillion against a total offer size of N2.45 trillion, indicating overwhelming investor demand for government securities despite falling yields.
The January 7 Treasury bill auction set the tone for the quarter as stop rates surged across all maturities.
The 91-day bill closed at 15.80 percent, the 182-day bill at 16.50 percent, while the 364-day paper reached 18.47 percent as the government sought to attract capital amid mounting fiscal financing needs.
At the January 21 auction, the momentum continued as the 91-day bill edged slightly higher to 15.84 percent, while the 182-day paper climbed to 16.65 percent.
Although the one-year bill eased marginally to 18.36 percent, investor demand remained exceptionally strong, with subscriptions hitting N3.345 trillion against an offer of N800 billion.
The market’s turning point emerged in February after the CBN’s Monetary Policy Committee reduced the Monetary Policy Rate by 50 basis points to 26.50 percent on February 24, marking the first rate cut in the current monetary cycle.
Even before the formal policy decision, the market had begun adjusting expectations.
At the February 4 Treasury bill auction, the 364-day stop rate had already declined sharply to 16.99 percent, representing a 148-basis-point drop from the January peak.
By February 18, the one-year bill fell further to 15.90 percent as the CBN allotted N1.71 trillion on the instrument against subscriptions worth N4.075 trillion, making it the largest one-year Treasury bill allotment during the quarter.
March saw relative stabilisation at the short end of the curve.
The 91-day Treasury bill remained unchanged at 15.95 percent across four consecutive auctions between March 4 and March 25, indicating that the market had found a pricing floor for short-duration instruments.
Meanwhile, the 364-day bill recovered slightly to 16.73 percent in early March before easing to 16.43 percent at the quarter’s final auction.
Despite lower yields, investor demand remained extremely strong. The March 25 auction attracted N2.726 trillion in subscriptions for the one-year bill against an offer of just N200 billion, resulting in a subscription-to-offer ratio of 13.6 times.
On the bond market, the DMO conducted three monthly auctions during the quarter.
February’s bond auction stood out as total subscriptions surged to N2.70 trillion, although only N524.28 billion was allotted.
By March, bond yields had settled into a range between 16.00 percent and 16.64 percent, representing declines of between 100 and 160 basis points from January levels.
Analysts said investors who participated in the January 7 one-year Treasury bill auction captured the best risk-free naira return available during the quarter.
Similarly, long-duration investors, especially Pension Fund Administrators constrained by regulatory requirements to hold sovereign assets, benefited significantly from January bond auctions before yields compressed.
Market analysts identified four major drivers behind the exceptional Q1 yield environment:
The Federal Government’s record borrowing requirement;
Early positioning by sophisticated investors ahead of expected rate cuts;
Excess liquidity that sustained strong demand for fixed-income assets despite falling yields; and
Increased pension fund flows following regulatory reviews by the National Pension Commission (PenCom).
Analysts noted that the first quarter reinforced a key lesson for fixed-income investors: timing is critical during a rate-cut cycle.
They added that while Nigeria’s fixed-income market remains historically attractive in Q2 2026, the peak of the yield cycle has likely passed as returns continue to moderate across the curve.
