Amid Moderate Borrowing, Subscription to FGN Bond Shrinks to N4.94trn

Kayode Tokede 

Following the federal government’s decision to reduce domestic borrowing, investors subscription to FGN bonds in the eight months of 2025 went down to N4.98 trillion, about 12.5 per cent decline when compared to N5.64 trillion in the comparable period of 2024. 

This is according to the bond auction results data released by the Debt Management Office (DMO).

The reduction follows a deliberate cut in bond offerings, as the government seeks to temper its borrowing amid elevated interest rates and mounting concerns over the country’s rising public debt profile.

FGN Bonds are debt securities (liabilities) of the Federal Government of Nigeria (FGN) issued by the DMO for and on behalf of the federal government.

FGN bonds are considered the safest of all investments in the domestic debt market because it is backed by the ‘full faith and credit’ of the government, and as such it is classified as a risk-free debt instrument. They have no default risk, meaning that it is absolutely certain your interest and principal will be paid as and when due. The interest income earned from the securities are tax exempt.

The government had approved Nigeria’s medium-term debt management strategy (MTDS) for the 2024-2027 fiscal year, pegging the debt-to-gross domestic product (GDP) ratio at 60 per cent as against the 52.25 per cent as of December 2024. 

“Interest payments will not exceed 4.5 per cent of GDP compared to 3.75 per cent in 2024, while sovereign guarantees are to remain below 5 percent of GDP, up from the 2.09 percent,” the DMO said

On the composition of the debt portfolio, the agency said the mix of domestic to external debt has been revised to “55:45, compared to 48:52 previously, while domestic borrowing will maintain at least 75 percent long-term instruments against a maximum of 25 percent short-term”

The President Bola Tinubu-led administration plans to borrow approximately N13.8 trillion to finance its 2025 budget deficit, with a significant portion expected to be raised in the first half through a mix of new and re-opened bonds.

However, in the eight months under review, the federal government offered a sum of N2.13 trillion in FGN bonds, a significant 59 per cent decrease from the N5.15 trillion offered in eight months of 2024.

The debt office, thus, allotted N4.23 trillion, a 11 per cent drop from the N4.73 trillion allotted a year earlier. The reduced offerings reflect a strategic shift aimed at moderating domestic debt accumulation while enhancing liquidity in existing bonds, a response to the high cost of borrowing in the current interest rate environment.

The bond market’s performance varied across the quarter. In January 2025, the government offered N450 billion across three instruments: the 5-year 19.30% FGN APR 2029, the 7-year 18.50% FGN FEB 2031, and a new 10-year 22.60% FGN JAN 2035 bond. Subscriptions totalled N669.94 billion, with N601.04 billion allotted through competitive bidding—no non-competitive allotments were recorded.

In comparison, January 2024 saw an N360 billion offer attract N604.56 billion in bids, with N418.2 billion allotted. Marginal rates in January 2025 ranged from 21.79% to 22.60%, a sharp rise from 15.00% to 16.50% in January 2024, reflecting the higher cost of funds.

Fast-forward, the DMO yesterday announced that it successfully raised N136.16 billion from the FGN bond auction conducted in August 2025.

According to the DMO, the auction featured the 17.945% FGN AUG 2030 (new 5-year bond) and the 17.95% FGN JUN 2032 (re-opening, 7-year bond), each with an offered size of N100 billion.

According to the data, the 5-year bond attracted 70 bids worth N102.36 billion, out of which the DMO allotted N46.01 billion at a marginal rate of 17.945per cent. Bid rates for this instrument ranged between 12.50per cent and 21.50per cent.

The 7-year bond witnessed stronger interest, with 111 bids amounting to N165.81 billion. The DMO allotted N90.16 billion at a marginal rate of 18per cent, within a bid range of 15per cent to 22per cent.

The decline in bond offerings signals a broader effort to manage Nigeria’s fiscal challenges. The CBN’s report underscores the stakes, which saw external debt rise 3.40 per cent year-on-year from $41.59 billion in third quarter (Q3) 2023, with servicing costs consuming significant resources. The $1.34 billion paid by September 2024 highlights the strain, particularly as public frustration grows over the lack of visible returns from borrowed funds.

The government’s more measured approach in 2025 aims to balance immediate financing needs with long-term debt sustainability, a critical task in an era of high interest rates.

Despite the reduced supply, investor appetite remains robust, particularly for medium- and long-term bonds like the 7-year and 10-year instruments, which appeal to institutional players such as pension funds aligning assets with liabilities. The DMO’s strategy also supports secondary market liquidity and maintains benchmark bonds across key tenors, facilitating price discovery.

Analysts stated that the lower bond yields typically indicate that investors perceive reduced risks and are willing to accept lower returns in exchange for safety.
Also, the modest   participation between January-August 2025 auctions suggested that large institutional investors, such as pension funds and asset managers, had excess liquidity to deploy, further compressing yields.

Meanwhile, analysts attributed the strong demand for FGN bond to attractive yield, which offers investors high returns on their investments, stressing that the oversubscriptions also revealed that investors have confidence in the federal government’s ability to meet its debt obligations.

In a report titled, “Nigeria’s 2025 economic forecast from reform fatigue quagmire to sustainable growth,” CFG advisory noted that the government borrowing has exceeded the $100 billion mark and debt service costs doubled from N8 trillion in 2024 to N16.3 trillion in the 2025 proposed budget.

The firm noted that N16.3 trillion in debt servicing is not sustainable as it exceeds the defence, security, infrastructure, education, and health budgets combined at N14 trillion.

The firm said, “The gains from the subsidy removal are now being used for debt servicing, instead of investment in capital expenditure that can create stimulus for economic growth.  Money supply has also increased by 50per cent YoY, to N108 trillion, a historic high that subverted the CBN’s ability to meet its 24per cent 2024 year-end inflation target.

“Nigeria GDP at US$195 Billion has declined over the last decade losing over $300 billion in value due to devaluation, low productivity and stagflation. The country is no longer the largest Economy in Africa, ranking fourth behind South Africa, Egypt and Algeria. This owing to prolonged policy inconsistency since the economy came out of post COVID-19 recession. The ongoing exercise to rebase GDP and CPI might therefore not yield the desired results.”

 To get the economy back on track, the firm urged the government to reduce its debt burden, restore its credit rating to investment grade and tame inflation.
“This would reduce borrowing costs and provide stimulus for investment, sustainable growth, productivity, and employment. To accomplish this, FGN must restructure its capital structure and balance sheet. Selling down its JV oil assets will raise $30-50 billion, that can be applied to reduce the debt burden, improve the foreign exchange regime, provide dollar supply for naira appreciation, restore credit rating and boost net reserves,” the firm explained.

A group of analysts at Coronation in a report titled “2025 year aheadm,” said “As we have seen, there was considerable pain in the bond market during the period from 2020 onwards, including 2024.

“Taking the Bloomberg Nigerian Local Currency Sovereign Absolute Return Index, which is based on a selection of medium and long-dated FGN bonds, recent returns have been poor. The index has returned just 10.8per cent in Naira over the past two years and a meagre 1.4per cent, mark-to[1]market, in 2024.

“2025 could see a reversal in fortunes, in our opinion. If, as we expect, the monetary authorities succeed in bringing inflation under control as the year progresses, with the chances of this increasing in Q4 2025 in our view, then there will be scope for the MPR to be cut and T-bill rates to fall.

“If this happens then we would see a rally in the FGN bond market. While bond rates were going up in 2024 it made sense to cut exposure to long durations and to increase exposure to short durations.

“The reverse would be true if market interest rates start to fall in 2025 and risk-tolerant investors would buy long-dated FGN bonds. Bond rallies are often associated with currency appreciation. If our optimistic scenario with regard to the Naira/US dollar exchange rate is realised, then this could itself point to a bond market rally.

“But, even if there is no actual Naira/US dollar appreciation in 2025, which is what our base case sets out, we believe that there would still be potential for a bond market rally if inflation is brought under control and the CBN is able to cut rates.”