Market News

Kayode Tokede

In a bid to bridge the 2025 budget deficit, the federal government through the Debt Management Office (DMO) has borrowed an estimated N2.5 trillion from the FGN bond market in the first four months of 2025.

This is about 22 per cent drop when compared to N3.15 trillion borrowed in the four months of 2024. 

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

Last year the government borrowed an estimated N5.84 trillion from the FGN bond market to bridge its 2024 budget deficit.

So far, the total subscription across the nine bonds offered by DMO stood at N1.17 billion in first four months of 2025 as against N4.04 trillion in first four months of 2025. 

DMO auction results showed that the total amount offered stood at N1.45 trillion in first four months of 2025, about 61 per cent decline from N3.76trillion offered in four months of 2024.

However, the DMO in its latest FGN auction result for April 2025 said it successfully allotted a total of N520.898 billion (including non-competitive allotment) across two re-opening issues—the 19.30% FGN APR 2029 (5-Year Bond) and the 19.89% FGN MAY 2033 (9-Year Bond).

The auction held on April 28, 2025, and the settlement date is scheduled for April 30, 2025.

According to the DMO’s official data, the auction saw mixed investor interest across the two maturities.

The 2033 bond was oversubscribed significantly, while the shorter-dated 2029 note witnessed modest demand.

Investor appetite was clearly skewed toward the longer-dated 2033 bonds, which attracted N452.16 billion in total bids—more than triple the N150 billion on offer. This resulted in a competitive allotment of N376.77 billion and an additional N73 billion via non-competitive bids, pushing total allotments for the 2033 paper to N449.77 billion.

In contrast, the 2029 bond saw subdued demand, attracting bids worth N43.79 billion against an offer size of N200 billion. The DMO allotted only N21.13 billion competitively and N50 billion non-competitively, totalling N71.13 billion.

Both issues were allotted at marginal rates of 19.00 per cent for the 2029 bond and 19.99% for the 2033 bond. However, the original coupon rates of 19.30 per cent and 19.89 per cent, respectively, will be maintained, the DMO stated.

The strong oversubscription of the 2033 paper suggests investors’ preference for longer-dated instruments in the current rate environment, likely driven by expectations of future monetary easing by the Central Bank of Nigeria (CBN) or sustained inflation hedging.

The April 2024 auction results also signal continued confidence in the FGN bond market, despite ongoing macroeconomic uncertainties, as institutional investors position for yield and duration in anticipation of market shifts.

The FGN bond continues to attract strong participation as Nigerians seek safer and more predictable returns amid broader market uncertainties.

The relatively high interest rates for the April 2025 offer underscore the government’s bid to raise domestic capital while offering attractive yields to encourage savings.

FGN bond is issued with a minimum subscription of N50,001,000.00 + multiple of N1,000.00 thereafter.

The DMO in January 2025 auction  had successfully raised a total of N669.94 billion, with N601.03 billion allotted across three bond tenors. The debt management had seek investors support to raise N450 billion.

The January 2025 FGN bond auction had marked another significant milestone in the government’s bid to finance critical infrastructure projects and support budgetary needs through domestic borrowing

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

Analysts  stated that the lower bond yields typically indicate that investors perceive reduced risks and are willing to accept lower returns in exchange for safety.

Also, the strong participation in first four months of 2025 auction suggests that large institutional investors, such as pension funds and asset managers, had excess liquidity to deploy, further compressing yields.

Meanwhile, analysts stated that the strong demand for FGN bond is as a result of attractive yield, which offers investors high returns on their investments, stressing that the oversubscriptions also revealed that investors have confidence in the federal government’s ability to meet its debt obligations.

Analysts at Coronation in a report titled, “2025 year ahead,” said “As we have seen, there was considerable pain in the bond market during the period from 2020 onwards, including 2024. Taking the Bloomberg Nigerian Local Currency Sovereign Absolute Return Index, which is based on a selection of medium and long-dated FGN bonds, recent returns have been poor. The index has returned just 10.8per cent in Naira over the past two years and a meagre 1.4per cent, mark-to[1]market, in 2024.

“2025 could see a reversal in fortunes, in our opinion. If, as we expect, the monetary authorities succeed in bringing inflation under control as the year progresses, with the chances of this increasing in Q4 2025 in our view, then there will be scope for the MPR to be cut and T-bill rates to fall. If this happens then we would see a rally in the FGN bond market. While bond rates were going up in 2024 it made sense to cut exposure to long durations and to increase exposure to short durations.

“The reverse would be true if market interest rates start to fall in 2025 and risk-tolerant investors would buy long-dated FGN bonds. Bond rallies are often associated with currency appreciation. If our optimistic scenario with regard to the Naira/US dollar exchange rate is realised, then this could itself point to a bond market rally.

“But, even if there is no actual Naira/US dollar appreciation in 2025, which is what our base case sets out, we believe that there would still be potential for a bond market rally if inflation is brought under control and the CBN is able to cut rates.”

The Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Dr Muda Yusuf had stated that the FG notified the general public of borrowing more this year.

He said, “With all the volatility and foreign exchange issues, it makes sense to borrow at the domestic market rather than borrowing from the international market. It is all a reflection of our macroeconomic environment challenges and weak fiscal policy of the government.

“All this borrowing also is a reflection of the weak financial position of the government and it will continue like that this year. The appetite for FGN bonds 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.