Nigeria’s Federal Government bond yields have risen to an average of 16.4%, despite the Central Bank of Nigeria’s decision to reduce its benchmark interest rate to 23% in September, highlighting persistent pressure in the country’s fixed-income market.
The latest development suggests that the CBN’s monetary easing has yet to translate into lower borrowing costs for the Federal Government, as investors continue to demand attractive returns amid increased government borrowing and selling pressure in the secondary bond market.
According to market data published by The Government and Business Journal on October 31, average yields across Federal Government of Nigeria bonds widened by eight basis points during the week, reaching 16.4%.
The increase reflected limited participation by offshore investors and sustained domestic selling pressure, despite improved liquidity in the banking system.
The latest yield represents an increase from the 16.1% recorded in the week ended October 9, when local investors’ profit-taking and liquidity absorption by the CBN contributed to a sell-off in government securities.
The development comes after the Monetary Policy Committee reduced the Monetary Policy Rate from 26.5% to 23% at its September 22, 2026 meeting, representing a 350-basis-point cut.
CBN Governor Olayemi Cardoso explained that the decision was an operational reset intended to strengthen monetary policy transmission and restore the benchmark rate as the principal signal of monetary policy.
The September decision followed a period in which market interest rates had diverged from the official benchmark, weakening the effectiveness of monetary policy transmission.
However, the reduction in the policy rate has not prevented borrowing costs on longer-term government securities from rising.
At its October 19 bond auction, the Debt Management Office offered ₦1.75 trillion in Federal Government bonds and attracted bids of approximately ₦1.75 trillion.
The 16.79% February 2036 bond cleared at 17.29%, while the 15.45% June 2038 bond recorded a marginal rate of 17.19%. The February 2034 bond cleared at 16.99%.
The auction results showed that investors continued to demand relatively high returns on longer-dated government securities despite the CBN’s interest rate reduction.
Dataminal Research, in its October 23 analysis of the auction, noted that the increase in bond rates reflected the pressure from the Federal Government’s borrowing requirements, with the October offer representing the largest monthly bond offer of the year at the time.
Meanwhile, the Treasury bills secondary market also experienced upward pressure.
The Government and Business Journal reported on October 31 that average Treasury bills yields across all instruments increased by three basis points to 20.4%, while average Nigerian Treasury Bills yields stood at 17.9%.
The developments highlight the distinction between the CBN’s policy rate and the yields investors demand on government securities. While the MPR influences monetary conditions, bond yields also respond to government borrowing requirements, inflation expectations, liquidity and investor demand.
With the Federal Government continuing to rely on domestic debt instruments to finance its expenditure, the direction of bond yields will remain important for the government’s debt-servicing costs and the broader financial market.
