Nigeria’s Sharp Rate Cut Squeezes the Yield Advantage on Naira Assets

Nigeria cut its benchmark interest rate from 26.5% to 23% on September 22, less than a week after the Federal Reserve raised its target range to 3.75%–4.00%.

The 364-day Nigerian Treasury bill had cleared at 16.62% at the September 9 auction, from 17.59% in August.

Two-year U.S. Treasuries yielded about 4.71% on September 22 and the 10-year was near 4.96%.

Nigerian government debt still pays considerably more in nominal terms, with inflation at 15.39% and foreign investors also carrying the risk of changes in the naira.

Nigerian Fixed Income Is Repricing Lower

Demand for short-term government debt remains heavy even as the rates available to investors decline.

At the latest auction, bids for the one-year bill reached ₦2.54 trillion against ₦500 billion offered, more than five times the amount available.

The effect differs further along the maturity profile. Investors rolling over Treasury bills are returning to lower rates, while fixed-rate FGN bonds issued earlier continue to pay their existing coupons.

Lower prevailing yields can also lift the secondary-market prices of those bonds before maturity.

Money-market funds carry the same repricing into their portfolios over time. Bills and other short-term securities purchased at earlier rates continue earning those returns until maturity; replacement assets are being issued into a lower-rate market.

Lower Rates Change Bank Credit and Equity Valuations

Credit to Nigeria’s private sector reached ₦83.43 trillion in July, from ₦81.04 trillion in May. UBA ended March with ₦7.17 trillion in customer loans, 2.1% above December, and reported a net interest margin of 6.49%, compared with 7.30% previously.

Loans and government securities issued before September remain on bank balance sheets at their existing terms.

New credit will be written under a 23% policy rate, and securities bought after the cut are entering portfolios as government yields move lower. Deposit rates add another variable to what banks earn between funding and lending.

The NGX All-Share Index had gained 59.71% for the year by August 10. Nigeria returned to the FTSE Russell Frontier Market classification on September 21, adding 30 Nigerian companies to the FTSE Frontier Index Series.

The rate cut follows those gains, with borrowing costs now moving into the earnings calculation for companies still paying for power, fuel and the movement of goods.

Higher U.S. Rates Raise the Bar for Nigerian Assets

Foreign portfolio investment into Nigeria reached $9.86 billion in the first quarter. Money-market instruments received $6.50 billion and bonds $3.23 billion, compared with $131.81 million for equities.

Foreign capital was concentrated in the part of the Nigerian market where yields have since declined.

The Federal Reserve moved the other way in September, raising its target range by 25 basis points to 3.75%–4.00%.

Dollar assets therefore carry a higher benchmark rate at the same time that new Nigerian government debt is being issued at lower yields.

The naira traded near ₦1,329 to the dollar in September, from around ₦1,535 in July 2025. That appreciation has supported the dollar value of naira returns over the period.

With Nigerian yields moving down and U.S. rates moving up, subsequent foreign portfolio flows will show how much demand remains at the new spread.

Naira Stability Now Carries More Weight in Nigerian Returns

Nigeria’s external reserves reached $54.6 billion by September 16, after the naira recovered substantially from its levels last year. That currency performance becomes more important as returns on new government debt decline.

Foreign portfolio flows and government auctions will provide the next reading on demand for naira assets.

Investors will be earning a smaller premium from interest rates, increasing the share of their dollar return that depends on what happens to the currency.

The September cut leaves Nigeria with less yield separating its government securities from lower-risk dollar assets. Maintaining foreign demand at those rates now depends more heavily on the naira holding its value.