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Budget Deficit, Investor Demand and the Reasons FG of Nigeria Borrowed N2.69tn from Bond Market in three Months

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INTRO: The Federal Government (FG) of Nigeria borrowed N2.69tn from bond market in three months according to first-quarter 2026 Debt Management Office (DMO) auction data, reflecting strong investor appetite and the government’s financing strategy amid fiscal needs. Here are five key reasons:

The Reasons FG of Nigeria Borrowed N2.69tn from Bond Market in three Months are Because of:

1. Financing the Federal Budget Deficit: A primary reason FG borrowed N2.69tn from bond market in three months is to fund the 2026 budget deficit. Dr. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise, noted that government borrowing through bonds and treasury bills has increased because “the government has been raising money to finance the deficit.” With N2.45tn offered and N5.88tn in total subscriptions in Q1 2026, the FG tapped strong demand to meet expenditure gaps.

2. Strong Investor Demand and Oversubscription: The FG of Nigeria also borrowed the N2.69tn from bond market in three months also because market conditions favored issuers. DMO data showed subscriptions hit N5.88tn against an offer of N2.45tn, an oversubscription rate of 240.14%. January 2026 alone saw N2.25tn in bids for N900bn offered, while February recorded the quarter’s highest subscription at N2.70tn. This investor appetite allowed the FG to raise N2.69tn while allotting only 45.64% of bids.

3. Attractive Yields Compared to Lending to Private Sector: Banks and financial institutions prefer government securities because rates remain attractive and risk is low. This is another factor in why FG borrowed N2.69tn from bond market in three months. Yusuf explained that yields on government paper are “more attractive to them than lending to the real sector,” contributing to crowding out of private credit. Even with marginal rates declining year-on-year to 15.50%–17.62% in Q1 2026 from 19.20%–22.60% in Q1 2025, returns still incentivize banks to buy bonds.

4. Re-opening Existing Benchmark Securities for Liquidity: The DMO’s strategy of re-opening existing instruments across maturities improved liquidity and supported the total raise. This tactical approach helps explain why FG borrowed the N2.69tn from bond market in three months, as it makes benchmark bonds more tradable and appealing to investors. The April 2026 circular shows the same approach continuing with a planned N700bn issuance.

5. Year-on-Year Increase in Borrowing Needs: Compared to Q1 2025, when N1.94tn was allotted, the FG borrowed N2.69tn from bond market in three months in 2026 representing a 38.76% increase, or N750.08bn more. Total subscriptions jumped by 107.71% from N2.83tn to N5.88tn. Despite higher demand, the allotment ratio dropped from 68.32% to 45.64%, showing the government was more selective even as it raised more funds. January dominated with N1.68tn allotted, while February and March saw N524.28bn and N485.50bn respectively.

Conclusion

The FG borrowed N2.69tn from bond market in three months due to deficit financing, robust investor demand, attractive yields, liquidity-focused issuance, and growing fiscal needs. While borrowing costs fell compared to 2025, economists warn that heavy government borrowing could crowd out private sector credit. As the DMO plans another N700bn raise in April, the balance between meeting public finance gaps and preserving credit flow to businesses remains a critical watchpoint for Nigeria’s economy.

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