Federal Government Increases Borrowing Amid Economic Pressures

In response to persistent low yields, the Federal Government, through the Debt Management Office (DMO), raised approximately N2.7 trillion during the FGN bond auction in the first quarter of 2026. This marks a significant 38.76% increase from N1.94 trillion borrowed in the same period in 2025.

Throughout the review period, the DMO proposed to secure N2.45 trillion compared to N1.1 trillion in the first quarter of 2025. Analysts suggest this strategy aims to address the widening budget deficit that the government is currently facing.

Recent surveys indicated that investor subscriptions during this period reached N5.88 trillion, reflecting a robust rise of 107.7% from N2.83 trillion in Q1 2025. This surge underscores the growing interest in FGN bonds as a secure investment avenue.

In the first quarter of 2026, the DMO reopened bonds maturing in February 2031, February 2034, and January 2035, with a total offering of N900 billion. Demand for these bonds amounted to N2.25 trillion, and the DMO allocated N1.7 trillion, resulting in respective suspension rates of 17.62%, 17.50%, and 17.52%.

As preparations continue for the February 2026 FGN bond auction, the DMO reopened bonds maturing in August 2030, May 2033, and February 2034, totaling N800 billion. Total demand for these issues reached N2.7 trillion, leading to an allocation of N524.28 billion. Notably, the stop rate for the February 2034 bond decreased by 200 basis points to 15.50%.

During the March 2026 FGN bond auction, the DMO reopened bonds due in August 2030, June 2032, and May 2033, proposing a total of N750 billion. Demand settled at NOK 931.5 billion, with N485.5 billion allocated. The stop rates for the June 2032 and May 2033 bonds increased by 41 basis points and 90 basis points to 16.15% and 16.64%, respectively, while the August 2030 bond’s stop rate remained at 16.00%.

The March 2026 notes were issued through a competitive bidding process based on yield to maturity, although the reopening process did not alter the coupon rate. This cautious approach reflects the government’s intent to manage rising debt service costs amid fluctuating oil prices while addressing heightened domestic borrowing requirements.

The DMO’s actions indicate a strategic response to ongoing fiscal pressures. In 2025, the Debt Department raised an estimated N5.26 trillion through the FGN bond market, a decrease of 9.93% from N5.84 trillion in 2024. The government anticipates borrowing around N13 trillion in 2025 to finance its budget deficit, primarily in the first half of the year through a mix of new and reopened bonds.

Investor interest, particularly from Pension Fund Administrators (PFAs), in FGN bonds underscores a preference for low-risk investment options amid low-interest rates. Analysts attribute this strong demand to modest yields, reflecting a level of trust in the federal government’s capability to honor its commitments. As David Adonori, Vice President of HiCap Securities Limited, highlighted, the rising debt remains a concerning issue, emphasizing the need for sustainable financial practices.

The DMO continues to attract investment in the bond market, reaffirming the faith of investors in government securities while navigating the complexities of Nigeria’s economic landscape.