FG securities deliver positive real returns to investors

Nigeria's fixed-income market is presenting investors with a significant opportunity: real returns that outpace inflation, a situation that has been scarce in recent years. This development means that investment returns are not only increasing in nominal value but also growing in purchasing power terms, effectively allowing investors to preserve and enhance their wealth.

The National Bureau of Statistics reported that headline inflation fell slightly to 15.91% in June 2026 from 15.93% in May, halting a three-month increase. This marginal decline has been sufficient to push the yields on certain government debt instruments above the inflation rate. Consequently, investors can now protect and grow their purchasing power after an extended period of negative real returns.

However, this improvement is not universal across all investment products. The FGN Savings Bond, primarily aimed at retail investors, offers a maximum coupon of 15.716%, which remains slightly below the current inflation rate. Despite this, higher sovereign borrowing costs have been a major factor in driving overall returns to positive real yields. For instance, at the June FGN bond auction, the January 2035 and April 2037 bonds yielded marginal rates of 18.34% and 18.35%, respectively, translating to positive real returns approximately 244 basis points above June's inflation rate. Similarly, a 364-day treasury bill sold in July recorded a stop rate of 17.66%, also remaining ahead of inflation.

Investor appetite has strengthened, with market participants actively repositioning their portfolios. Treasury bill turnover surged by 137.49% to N1.51 trillion, and FGN bond turnover increased by 75.91% to N1.20 trillion in the week ended June 19, indicating robust trading activity in the sovereign debt market. Analysts note that positive real returns make treasury bills and government bonds attractive again, as investors are rewarded in real, inflation-adjusted terms.

Despite the current positive outlook, analysts caution that this period of attractive inflation-adjusted returns might be temporary. Projections suggest a potential fall in the Monetary Policy Rate (MPR) by the last quarter of 2025, with some expecting it to decline to 25.5% or even 25% by the end of 2026. This anticipated monetary easing could influence future yields.

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Positive real returns make treasury bills and government bonds attractive again because investors are rewarded in real, inflation-adjusted terms.