Do Treasury Bills Protect Investors Against Inflation in Nigeria? Evidence from Real Yield Gaps, the Fisher Relation and Out-of-Sample Forecasts, 2006-2026

Abstract: Treasury bills carry almost no default risk for a naira investor, but that says nothing about what happens to their purchasing power. This paper measures how far Nigerian Treasury bill yields have kept up with inflation and asks whether monetary indicators help to predict changes in bill yields. Using 243 monthly observations from the Central Bank of Nigeria for January 2006 to March 2026, I find that the bill rate fell short of contemporaneous headline inflation by an average of 5.50 percentage points (HAC p < 0.001), and by 6.16 points when it is compared with the inflation actually realised over the following twelve months. The shortfall was negative in 72 per cent of months and, strikingly, in every one of the 122 months from October 2015 to November 2025. It widened to an average of 17.4 points in 2022–2024. A Fisher regression of the bill rate on inflation gives a coefficient of 0.17 that is statistically indistinguishable from zero and decisively different from one, and an ARDL bounds test finds no long-run relationship between bill yields and inflation. In a model of monthly yield changes, lagged changes in the policy rate and in inflation have positive but only marginally significant coefficients. Out of sample, over January 2022 to March 2026, no model beats a simple no-change forecast. The paper also shows that two zero values recorded in the published bill- rate series produce strong but spurious short-run dynamics if they are not corrected. Nigerian Treasury bills have been a reliable store of nominal value but a poor hedge against inflation for most of the last two decades.

Keywords: Treasury bills; inflation hedging; real interest rates; Fisher effect; financial repression; Nigeria

JEL classification: E31; E43; E52; G12; C53