Budget Deficit: Government Raises N3.6 Trillion Through Bond Market in Five Months

Kayode Tokede

In an effort to close the budget deficit, the federal government, through the Debt Management Office (DMO), raised an estimated N3.6 trillion from investors in the first five months of 2026 by issuing the FGN Bond.

The N3.6 trillion raised between January and May 2026 reflects the government's continued reliance on the domestic debt market to finance fiscal obligations amid tight external financing conditions.

This amount represents a 51.5 percent increase over the N2.66 trillion raised in the same period in 2025.

Despite a cut in the yield, total investor subscription reached N7.63 trillion in the first five months of 2026, an increase of 106 percent from the N3.7 trillion declared by the debt office in the same period in 2025.

The debt office offered N3.75 trillion, a 114.3 percent rise over the N1.75 trillion offered in the first five months of 2025, but ultimately settled at N3.6 trillion.

The N7.63 trillion total subscription in the first five months of 2026 shows that investors—particularly Pension Fund Administrators (PFAs)—prefer risk‑free instruments such as the FGN Bond and Nigerian Treasury Bills (NTB).

PFAs and fund managers have been instrumental in the success of FGN bonds over the years.

Since the beginning of the year, the DMO has repeatedly reopened some FGN Bonds at modest interest rates to attract investors.

The latest FGN auction for May 2026 revealed that the DMO reopened the JAN‑2035 and APR‑2037 bonds, offering a total of N600.00 billion to the investing public.

Non‑competitive bids totaled N796.17 billion (bid‑to‑offer: 0.9×), and the DMO ultimately allotted N614.5 billion (bid‑to‑cover: 1.5×). The stop rate on the JAN‑2035, which was on‑the‑run last month, increased by 41 basis points to 17.00%. The stop rate on the APR‑2037 printed 17.04%.

The FGN’s April 2026 bond auction attracted a total of N948 billion in bids—well above the N700 billion offered—across three maturities for April 2026.

According to the DMO, the auction was held on 27 April 2026 and covered the re‑opening of the 17.945% FGN August 2030 bond, the 17.95% FGN June 2032 bond, and the 22.60% FGN January 2035 bond.

Investor participation was broad‑based, but demand was heavily skewed toward the long end of the curve, reflecting a continued preference for higher yields in a tight monetary environment.

However, the wide range of bid rates, from 15.00 percent to 22.60 percent, also indicates divergent investor expectations regarding inflation, monetary policy direction, and future interest rate movements.

Analysts attribute the strong demand for FGN bonds to modest yields, noting that the over‑subscription also shows investor confidence in the federal government’s ability to meet its debt obligations.

The appetite for FGN bonds indicates that PFAs and Nigerian investors prefer investment instruments with low volatility that assure them of capital returns, even if the yield is low.

“So, investors expect a higher yield for this particular issuance, while the government does not wish to borrow at a higher interest rate,” said investment banker and stockbroker Mr. Tajudeen Olayinka.