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•Pace of borrowing among highest in recent years, say experts
The federal government borrowed a net N7.6 trillion from the domestic debt market in the first half of 2026, highlighting its growing reliance on local investors to finance budget needs and other fiscal obligations.
This was revealed in a market review and outlook report titled Nigeria in 2026: Recovery to Realignment by investment firm Cordros Securities.
According to the report, the Debt Management Office (DMO) raised the funds through Treasury bills and Federal Government of Nigeria (FGN) bonds. Treasury bills accounted for N3.18 trillion, while FGN bonds contributed N4.42 trillion, bringing the total net domestic borrowing to N7.60 trillion.
The report said the scale of borrowing is one of the biggest seen in recent years, reflecting the government’s increased dependence on the local debt market to meet its financing needs.
Treasury bill sales recorded the sharpest increase during the period. Total issuances rose by 59.8 per cent year-on-year to N12.75 trillion.
Investors continued to show strong interest in the short-term securities, with total subscriptions reaching N38.67 trillion, about three times the amount offered. This was slightly higher than the 2.8 times recorded in the same period of 2025.
However, the government also increased the amount allotted to investors by 68.9 per cent to N14.36 trillion.
Cordros noted that although investor demand remained strong, the volume of securities offered for sale was even higher. This pushed Treasury bill yields up by 106 basis points to 18.7 per cent during the first half of the year.
A similar trend was recorded in the bond market. The DMO issued N4.95 trillion worth of FGN bonds, representing a 25.1 per cent increase from the same period last year, while total allotments rose by 70.7 per cent to N4.42 trillion.
Demand for bonds, however, was relatively weaker. Investors subscribed N8.76 trillion, while the bid-to-offer ratio declined to 1.8 times, compared with 2.2 times in the first half of 2025.
The report attributed the softer demand to higher interest rates and changing expectations about the Central Bank of Nigeria’s monetary policy. It added that the heavy supply of bonds, especially in June, caused borrowing costs to rise across the market.
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Benchmark FGN bond yields increased by 123 basis points to 17.8 per cent. Short-term bonds recorded the biggest increase, rising to 18.2 per cent, while medium-term bonds climbed to 18.3 per cent. Long-term bonds rose more moderately to 16.2 per cent.
Among the hardest-hit securities were the March 2027, January 2035 and April 2037 bonds, which recorded significant increases in yields.
Despite the higher supply of government securities, demand remained fairly strong, supported by ample liquidity in the financial system and continued interest from foreign investors.
The report explained that liquidity improved significantly during the period because large volumes of the Central Bank of Nigeria’s Open Market Operation (OMO) securities matured, releasing fresh funds into the banking system.
Although the CBN issued new OMO bills to absorb excess cash, the inflow of funds from maturing investments ensured that liquidity remained high, helping to sustain demand at both primary auctions and the secondary market.
Foreign investors also maintained interest in Nigeria’s fixed-income market because of the attractive yields. Data from the National Bureau of Statistics (NBS) showed that foreign inflows into the fixed-income market reached about $9.76 billion in the first quarter of 2026.
Looking ahead, Cordros Securities warned that the imbalance between the government’s heavy borrowing programme and investor demand could keep interest rates high in the second half of the year.
The analysts said, “While demand buffers helped moderate the extent of yield increases, the imbalance between supply and demand remains a key risk factor for the second half of the year.
With borrowing needs still elevated and monetary policy expectations shifting, market participants are likely to remain cautious as they reassess yield levels and positioning across the curve.”
They added that the fixed-income market would likely be driven by three major factors in the months ahead: continued heavy domestic borrowing by the Federal Government, the Central Bank’s decision to keep interest rates unchanged because of persistent inflation, and a gradual return of foreign investors.
According to the analysts, these factors will keep the supply of government securities high and maintain upward pressure on interest rates.
“While improving foreign investor participation and easing geopolitical tensions could provide intermittent support, we expect these factors to moderate rather than offset the impact of large government issuances, leaving yields elevated and market conditions volatile throughout the remainder of the year,” the report added.
