DMO ramps up domestic debt, raises N1.2trn via FGN bonds

The Federal Government significantly ramped up its domestic borrowing
pro­gramme in June, raising N1.2 trillion through the Debt Management Office
(DMO) FGN bond auction, as investors sought higher returns amid mounting
inflation concerns and expectations of prolonged tight monetary conditions.

Analysts said while the Federal Government successfully raised cap­ital to plug
its massive budget deficit, doing so at an 18%+ yield is highly expensive.

They noted that a significant chunk of future national revenue will now be eaten
up just by paying interest on this N1.2 trillion debt, severely constraining the
budget available for capital projects like roads, healthcare, and ed­ucation. ­

Analysts have consistently warned that accelerating do­mestic borrowing to
finance deficits poses a massive fiscal risk, noting that raising over a trillion
naira at these premium rates leaves Nigeria with mini­mal fiscal buffers.

According to them, with risk-free government bonds offering guaranteed returns
above 18%, commercial banks and institutional investors (like pension fund
administrators) have very little incentive to lend to the private sector, noting that
it is far safer and more lucrative for banks to pack their liquidity into FGN
bonds than to take a gamble on businesses.

The analysts said because the government is borrowing at 18%, commercial
banks will inevitably price their corporate loans much higher—often up­wards
of 28% to 32%. For local manufacturers, small business­es, and startups,
borrowing at these rates makes expansion or even daily operations nearly
impossible.

The June auction saw the DMO offer N1.2 trillion worth of bonds, double the
N600 bil­lion offered in May, underscor­ing the government’s increas­ing
reliance on the domestic debt market to finance its wid­ening fiscal deficit and
meet funding obligations.Investor appetite remained robust despite the larger
issu­ance, with total subscriptions rising sharply to N1.4 trillion from N796.2
billion recorded at the previous auction.

The strong demand was largely driven by the recent upward movement in
market yields, which has enhanced the attractiveness of fixed-income securities.

The auction featured two in­struments—the January 2035 and April 2037 FGN
bonds— with N600 billion offered on each tenor. Demand was broadly
balanced across both maturities, reflecting sustained investor confidence in
long-dat­ed government securities.

According to DMO data, the January 2035 bond attract­ed subscriptions worth
N705.2 billion, while N600.9 billion was allotted. Similarly, the April 2037
bond recorded subscriptions of N708.3 billion, with final allot­ment standing at
N621 billion.

Despite the strong partic­ipation, the bid-to-cover ratio declined to 1.16 times
from 1.30 times recorded in May, suggesting that while demand remained
healthy, the signifi­cantly larger offer size diluted overall subscription coverage.

A key highlight of the auc­tion was the sharp increase in stop rates across both
matur­ities. The marginal rate on the January 2035 bond rose to 18.34 percent
from 17.00 percent at the previous auction, while the April 2037 bond settled at
18.35 percent, compared to 17.04 per­cent previously.

Analysts attribute the rise in yields to renewed inflationary pressures,
particularly those arising from energy-related cost shocks, which have
height­ened expectations that mone­tary authorities will maintain a restrictive
policy stance for longer.

The higher rates also reflect investors’ demand for greater compensation in an
environ­ment of elevated inflation risks and fiscal uncertainties.

Market watchers note that the government’s growing fi­nancing needs continue
to exert upward pressure on domestic borrowing costs. Nigeria’s fis­cal deficit
is estimated at about N23.9 trillion, with approxi­mately N18.4 trillion expected
to be financed through the do­mestic market.

This substantial funding requirement is expected to sustain a steady supply of
gov­ernment securities, providing continued support for elevated yields across
the fixed-income market.

The latest auction further highlights the government’s deepening dependence on
domestic debt as external fi­nancing conditions remain challenging.

While domestic borrow­ing offers a readily accessible funding source, analysts
warn that sustained heavy issuance could crowd out private-sector borrowers
and keep interest rates elevated.

So far in 2026, the DMO has raised approximately N4.8 tril­lion, including non-
competitive allotments, putting it on course to surpass the N5 trillion raised in
the entire 2025 fiscal year.