FG offers N600bn bonds as borrowing costs drop

By Uche Usim

Nigeria’s debt managers are testing investor appetite with a N600 billion bond auction, even as borrowing costs show early signs of easing across the fixed-income market.

The Debt Management Office (DMO), acting on behalf of the Federal Government, is reopening two existing bonds with headline coupon rates of 22.60 per cent and 16.2499 per cent, offering investors a mix of high returns and long-term stability. The offer, which closes today, May 18, 2026, settles on May 20 and spans two maturities, 10-year and 20-year tenors, targeting institutional investors hungry for yield.

There are two tranches: N300 billion of the 22.60 per cent FGN bond due January 2035 and another N300 billion of the 16.2499 per cent bond due April 2037. Both instruments will pay interest twice a year, with the principal repaid in full at maturity, a structure that continues to appeal to pension funds, banks and other long-term investors.

Rather than issue entirely new debt, the DMO is reopening existing bonds, a strategy designed to deepen liquidity in already active securities.

By concentrating supply in familiar instruments, the agency avoids fragmenting the market while making it easier for investors to trade the bonds in the secondary market.

The auction is being executed through a network of Primary Dealer Market Makers, including major banks such as Access Bank, Zenith Bank and Guaranty Trust Bank, underscoring the central role of financial institutions in distributing government debt. Although the coupon rates appear elevated, especially the 22.60 per cent note, actual investor returns will be determined by the yield that clears at auction. Because these are reopened bonds, bidders will pay prices that reflect prevailing market yields, along with any accrued interest. This means the final cost to the government could come in lower than the headline rates suggest.

That possibility aligns with a broader shift in the market. Recent data shows yields on government securities trending downward, driven by improved liquidity conditions and strong demand from domestic investors. Treasury bills, OMO instruments and FGN bonds have all recorded yield compression in recent months, with average bond yields easing to around 16 per cent by mid-February 2026.

Compared with earlier issuances, the current offering already reflects this softening trend. Previous auctions saw the government pay as much as 22.60 per cent on similar long-dated instruments, but more recent sales have cleared at lower levels, suggesting that financing costs may be gradually moderating. Analysts link the shift to a combination of factors, including a mild easing in inflationary pressures, surplus liquidity in the banking system and expectations of a more accommodative monetary policy stance. With fewer attractive alternatives in the market, institutional investors have continued to channel funds into sovereign debt, pushing yields lower.

Even so, long-dated bonds like those on offer remain attractive for investors seeking to lock in relatively high returns over extended periods. For pension funds and insurance firms, in particular, the instruments provide predictable income streams backed by the full faith and credit of the Federal Government.

The bonds also carry additional advantages. They qualify as liquid assets for banks’ regulatory ratios and are exempt from certain taxes, further boosting their appeal. Listings on the Nigerian Exchange Limited and the FMDQ OTC Securities Exchange ensure that investors can buy and sell them easily, enhancing price transparency and market confidence.

With a minimum subscription set at N50.001 million and units priced at N1,000, the auction is clearly geared toward large-ticket investors. Still, its outcome will be closely watched as a signal of where Nigeria’s borrowing costs are headed.

If strong demand persists and yields continue to compress, the government could secure funding at more favourable rates in the months ahead. For now, the N600 billion sale stands as a key test of market sentiment, where high nominal yields meet a shifting reality of easing returns.