The Nigerian debt capital market is entering a phase of “sticky” stability. After a volatile 2024 that saw Commercial Paper (CP) yields skyrocket to 30%—driven by the Central Bank’s aggressive hawkish stance—rates have successfully retreated to the lower 20s range in early 2026.
However, analysts warn that the honeymoon period for falling rates may be short-lived. Despite projected inflation cooling to approximately 16.52% and a cautious downward trend in the Monetary Policy Rate (MPR), the Federal Government’s massive budget deficit for 2026 is expected to keep borrowing costs elevated for the private sector.
“We expect rates to moderate in 2026; however, we see limited decline from this point as crowding out from increased public sector borrowing in 2026 could keep rates elevated despite expectations of declining inflation and reduced monetary policy rate,” SBG Securities analysts said in a recent note.
The 2026 Rate Floor: Why Yields Won’t Crash
While the macro environment is improving, two opposing forces are keeping CP yields from returning to historical single digits:
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The “Crowding Out” Effect: With a record deficit to fund, the government is competing aggressively for domestic capital. This forces investors to favor “risk-free” Treasury Bills, leaving corporate issuers to offer higher premiums to attract the remaining liquidity.
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Secondary Market Anchors: One-year Treasury Bill yields are currently hovering around 16.3% to 17.3%. Corporate CP issuers must maintain a “spread” (typically 300–500 basis points) above these sovereign rates to compensate for credit risk, effectively flooring CP rates in the 19%–22% range.
The ‘Real Return’ Milestone
For much of 2024 and 2025, investors faced “negative real returns” as inflation (33%+) dwarfed interest rates. The 2026 outlook flips this narrative:
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The Yield-Inflation Gap: With inflation projected to moderate toward 16.5% by year-end and CPs currently yielding between 21% and 25%, investors are eyeing a net real return of 5% to 9%.
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Capital Preservation: This positive spread is a primary driver for the “de-dollarization” of local savings, as Naira-denominated CPs now offer a better hedge than holding stagnant foreign currency.
“We expect CPs to remain an attractive investment option from a yield perspective through 2026 despite expectations of a rate decline from a policy perspective. The push for real interest rates, which improved considerably over the past year, also implies positive returns in the instrument when compared to the inflationary environment. The push to keep naira assets reflective of the risks has attracted an increase in domestic and foreign portfolio demand,” the SBG analysts said.
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