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By Chinwendu Obienyi
Nigeria’s high-interest-rate environment has dampened activity in the corporate bond market, leading to a modest decline in pension fund investments in corporate debt, according to the latest industry data and analyst insights.
This is coming after pension fund investments in corporate debt edged lower by 1 per cent year-on-year (y/y) to N2.2 trillion as at August 2025, reflecting subdued issuance by companies.
In a FBNQuest Merchant Bank’s email note seen by Daily Sun, the decline is attributed the slowdown to elevated borrowing costs caused by the Central Bank of Nigeria’s (CBN) tight monetary policy stance over the past two years.
“High yields in government securities have made it more expensive for corporations to issue bonds. Companies are reluctant to borrow at double-digit rates, especially when revenues are under pressure from inflation and rising costs”, the bank explained.
The CBN had maintained a series of rate hikes since 2023 in a bid to contain inflation, which peaked above 33 per cent earlier this year. Although the measures stabilized the foreign exchange market and curbed excess liquidity, they also pushed borrowing costs to record highs, discouraging firms from tapping the domestic debt market.
Currently, interest rate sit at 27 per cent. Analysts say the weaker issuance has broader implications for private-sector financing and long-term economic growth. With fewer companies able to raise funds through bonds, access to affordable long-term capital remains constrained, limiting expansion and investment across key industries.
“When firms issue fewer bonds, it restricts their ability to fund major projects or expand operations. This slows private-sector growth and job creation, while concentrating pension assets in government securities that offer stability but limited real-economy impact”, they said.
Indeed, government debt continues to dominate the pension industry’s portfolio, accounting for more than 60 per cent of total assets under management. According to the National Pension Commission (PenCom), the value of FGN securities grew by 17 per cent y/y or N2.3 trillion to N15.7 trillion. Within this segment, FGN bonds were the primary driver of growth, accounting for a substantial share – 85 per cent of the total FGN securities. Investment in FGN bonds increased by 5 per cent y/y to N13.3 trillion.
While this provides safety and consistent returns, it also highlights Nigeria’s overreliance on sovereign borrowing, a dynamic that crowds out the corporate sector from the debt market.
The underdevelopment of the corporate bond segment remains a long-standing challenge in Nigeria’s capital markets. Industry observers argue that a deeper, more liquid corporate debt market would enhance financial system stability, reduce pressure on banks, and provide pension funds with broader investment options.
FBNQuest said that there are signs that the trend could reverse. The CBN’s 50-basis-point rate cut in September, the first in nearly two years, is widely seen as the beginning of a potential monetary policy easing cycle.
Lower rates could reduce borrowing costs, making it more attractive for companies to issue debt and for institutional investors, including pension funds, to diversify beyond government securities.
“With interest rates expected to ease further, we anticipate a gradual rebound in corporate bond issuance. That could improve funding access for firms and support broader economic activity in the coming quarters”, the bank said.
