Onome Amuge
The Debt Management Office (DMO) has opened its 2026 domestic borrowing programme on a buoyant note, raising N1.54 trillion at the January FGN Bond auction.
The auction, which featured three re-opened instruments, the 7-year FGN FEB 2031, and the 10-year FGN FEB 2034 and JAN 2035 bonds, was oversubscribed as investors bid N2.25 trillion, more than double the N900 billion initially offered. The oversubscription was most pronounced for the longer-dated papers, highlighting a strategic shift in investor preferences.
The 10-year FGN FEB 2034 emerged as the market favourite, attracting N1.01 trillion in bids against an offer of N400 billion, while the newly introduced JAN 2035 10-year bond drew N570 billion in subscriptions, more than double its N200 billion issuance. The 7-year FGN 2031 instrument also saw strong interest, with N514.45 billion in bids.
While longer-term bonds typically carry higher yields to compensate investors for inflation and interest rate risks, Nigeria’s debt market has recently diverged from this pattern. The 364-day Treasury Bill recently cleared at 18.47 percent, while the 10-year JAN 2035 bond was priced at a lower 17.52 percent, creating a 95-basis-point inversion between short- and long-term yields.
Analysts interpret this as a clear signal that investors are betting on an eventual easing of monetary policy. After years of high rates to curb inflationary pressures, the persistent disinflation trend and recent currency stability have encouraged market participants to lock in long-term yields, even at slightly lower rates, anticipating a 300–400 basis point cut in benchmark interest rates later in 2026.
CardinalStone Research notes that this is not a uniform downward shift across the yield curve. Rather, a fragmented curve is emerging, with shorter-term instruments maintaining high rates to deter FX speculation, while mid- and long-term bonds see moderate yield increases as the government manages its funding requirements.
The DMO’s successful fundraising reflects both investor appetite for government debt and the challenge of managing liquidity in Nigeria’s financial system. Within just three weeks, over N3.8 trillion has been withdrawn from banks through T-Bills and bond subscriptions, reflecting the scale of government borrowing.
While this injection provides the federal government with the necessary funding to bridge the projected N23.85 trillion 2026 fiscal deficit, economists caution that continued reliance on debt could crowd out private-sector investment, particularly for companies seeking cheaper financing for capital expansion. The high cost of cash in the short term may also constrain lending and weigh on industrial growth.
For investors, the appetite for longer-tenor bonds indicates a growing confidence in Nigeria’s macroeconomic management. Locking in yields over 10 years provides a hedge against potential volatility in the short term while benefiting from an expected monetary policy easing in the second half of the year.
Market observers argue that such oversubscription reflects a trend in emerging markets where investors are increasingly forward-looking, pricing securities not just on current yields but on anticipated policy and currency trajectories.
