Budget Deficit: FG Raises N2.7trn via Bond Market amidst Modest Yields

Kayode Tokede  

Amid low yield, the federal government through the Debt Management Office (DMO) borrowed an estimated N2.7 trillion via FGN Bond auctions in the first quarter of 2026, about 38.76 per cent increase over N1.94 trillion  in the first quarter of 2025. 

During the period under review, the federal government through DMO offered to raise N2.45 trillion as against the N1.1 trillion offered in Q1 2025. The effort, according to analysts is ina bid to bridge the widening budget deficit. 

THISDAY investigations revealed that investors’ subscription in the period under review stood at N5.88 trillion, representing an increase of 107.7 per cent when compared to N2.83 trillion in the corresponding period of 2025.  

A breakdown of Q1 2026 auctions showed that the DMO reopened the FEB-2031, FEB-2034 and JAN-2035 bonds, offering a total of N900.00 billion. Total demand settled at N2.25 trillion , with the DMO eventually allotting N1.7 trillion at respective stop rates of 17.62 per cent, 17.50 per cent, and 17.52 per cent.

For the February 2026 FGN bond auction, the DMO reopened the AUG-2030, MAY-2033 and FEB-2034 bonds, offering a total of N800.00 billion. Total demand settled at N2.70 trillion, with the DMO eventually allotting N524.28 billion in its February 2026 FGN bond auction.  According to DMO report, the stop rate on the FEB 2034, which was on-the-run last month, declined by 200basis points  to 15.50 per cent.

During the FGN bond auction in March 2026, the DMO reopened the AUG-2030, JUN-2032 and MAY-2033 bonds, offering a total of N750.00 billion. Total demand settled at N931.50 billion, with the DMO eventually allotting N485.50 billion.   

The stop rate on the JUN-2032 and MAY-2033, which were on-the-run last month, expanded by 41basis points and 90basis points  to 16.15per cent and 16.64per cent respectively. While the stop rate on the AUG-2030 printed 16.00per cent, according to the debt office in its March results. 

The bonds in March 2026 was  issued through a competitive auction process in which investors bid based on yield-to-maturity, while coupon rates remained unchanged due to the re-opening structure.

The offer comes amid persistent fiscal pressures and rising domestic borrowing requirements, as the government continues to depend on the local debt market to finance budget deficits and refinance maturing obligations.

The lower offer size in March 2026 by DMO suggests a more measured borrowing approach, which may reflect improved liquidity conditions driven by higher oil prices, as well as efforts to contain rising debt service costs.

THISDAY had reported that the debt office in 2025 raised an estimated N5.26 trillion via the FGN bond market, about a 9.93 per cent drop from N5.84 trillion  raised in 2024. 

The government in 2025 had projected to borrow approximately N13 trillion from FGN bonds to finance its projected budget deficit, with a significant portion expected to be raised in the first half through a mix of new and re-opened bonds.

The N5.88 trillion total subscription in the Q1 2026  by investors is a reflection that investors, most especially the Pension Fund Administrators (PFAs) tend to invest in risk-free instruments, of which FGN Bond and Nigerian Treasury Bills (NTB) offer to the investing public. 

As gathered by THISDAY, PFAs have played a critical role in partaking in the FGN bond market.

THISDAY also gathered that the DMO, since the beginning of the year, has continually re-opened some FGN Bonds amid modest interest rates in its moves to attract investors.  Finance analysts attributed the strong demand for FGN bonds to modest  yields, stressing that the over-subscription also revealed that investors have confidence in the federal government’s ability to meet its debt obligations. 

The appetite for FGN bonds, they said, indicates that PFAs, and Nigerian investors prefer investment instruments with less volatility that assures them of their capital returns albeit with low yield on investment.

“So, investors expect higher yield for this particular issuance, while the government does not wish to borrow at a higher interest rate,” said an investment banker & stockbroker, Mr. Tajudeen Olayinka.

In recent years, Nigeria’s rising debt profile has been a topic of concern, as Vice President, Highcap Securities Limited, Mr. David Adnori, warned that the country’s debt levels are unsustainable.

The DMO had maintained that the robust subscription levels highlight continued investor confidence in the government’s debt instruments, driven by attractive yields and Nigeria’s stable credit ratings.