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By Chinwendu Obienyi
Despite elevated interest rates and tight domestic liquidity conditions, the Debt Management Office (DMO) has revealed that total investor demand at its latest Federal Government of Nigeria (FGN) bond auction rose to N2.25 trillion, reflecting sustained appetite for local debt.
The auction, held on Monday, saw the DMO reopen three existing bond issues, the February 2031, February 2034, and January 2035 maturities, with a combined offer size of N900 billion, according to official auction results released yesterday.
Total subscriptions exceeded the offer by more than twofold, translating to a bid-to-offer ratio of 2.5 times, highlighting strong participation from banks, pension fund administrators and asset managers.
Following the auction, the DMO allotted a total of 1.54 trillion naira, significantly above the initial offer, resulting in a bid-to-cover ratio of 1.5 times.
The bonds cleared at stop rates of 17.62 per cent for the February 2031, 17.50 per cent for the February 2034, and 17.52 per cent for the January 2035 instruments.
The outcome indicates continued investor preference for medium- to long-dated government securities, as participants seek to lock in high nominal yields amid uncertainty over the trajectory of inflation and monetary policy.
Nigeria’s annual inflation rate currently stands at 15.15 per cent, while the central bank has raised its benchmark interest rate by a cumulative 750 basis points since February 2024, pushing the monetary policy rate to 27 per cent in an effort to rein in price pressures and stabilise the naira.
Despite the aggressive tightening cycle, demand for government debt has remained resilient, supported by limited alternative investment options and improved confidence following recent FX reforms.
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Market analysts said the relatively tight clustering of stop rates across the three tenors suggests investors are increasingly comfortable with yields around the mid-17 per cent level, particularly as expectations build that interest rates may be approaching a peak.
“The auction shows strong depth in the domestic market, especially from institutional investors who continue to favour longer-dated paper,” said one Lagos-based fixed-income trader. “There is growing belief that yields may stabilise in the coming months.”
The DMO has relied heavily on domestic borrowing to finance Nigeria’s budget deficit, as external funding costs remain high and access to international capital markets stays constrained.
The 2025 federal budget projected a deficit of N9.18 trillion, with the government planning to fund a significant portion through domestic bond issuance.
Already, President Bola Tinubu has presented the 2026 budget titled; Budget of Restoration” which proposes a total expenditure of approximately N58.18 trillion, targeting 4.68 per cent GDP growth.
Market experts expect bond supply to remain elevated in the second half of the year, though auction sizes may fluctuate depending on liquidity conditions and government cash flow needs.
In the secondary market, FGN bond yields were broadly stable following the auction, with traders noting limited scope for immediate repricing given that stop rates were largely in line with prevailing market levels.
While the debt office has started seeing oversubscription in its debt funding round to bridge the projected N23.85 trillion 2026 fiscal deficit, the crowding out effect remains a looming shadow over the real economy as more companies run to raise equities over expensive debt.
