The federal government has kicked off its 2026 domestic borrowing with an oversubscribed N1.54 trillion FGN Bond auction, according to the Debt Management Office (DMO).
The result of the January FGN Bond auction, published on Monday, revealed an oversubscription of the government debt security as investors flocked to high-yield government instruments.
Total subscriptions reached N2.25 trillion, more than double the N900 billion initially offered by the DMO.
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The DMO opted to allot N1.54 trillion, utilising the surplus liquidity to boost the federal government's funding requirements.
The auction featured three reopening instruments: the FGN FEB 2031 (a 7-Year bond), the FGN FEB 2034 (a 10-Year bond), and the FGN JAN 2035 (a 10-Year bond).
Investor appetite was particularly higher for the longer-tenured instruments.
In a typical economy, investors demand a term premium, meaning higher interest for longer periods. However, this has not been the case in Nigeria's debt market in recent years, where shorter-term debt has offered higher interest rates than longer-term debt.
The 364-day Treasury bill stop rate recently cleared as high as 18.47 per cent, while the new 10-year FGN Bond (2035) cleared at a lower marginal rate of 17.52 per cent.
The 95-basis-point difference between the one-year and ten-year instruments suggests that the market is actively betting on a significant monetary policy turn as the disinflation trend finally gains traction.
This 95-basis-point spread is wider than it was at the end of 2025. It suggests that while the Central Bank (CBN) is keeping rates high, investors are so convinced of an eventual rate crash that they are willing to accept lower returns today just to lock in for the next decade.
Analysts are now forecasting a 300 to 400 basis point (bps) cut in the benchmark interest rates for the latter part of 2026. This shift is supported by a persistent disinflation trend and currency stability.
The widening gap validates the recent outlook from CardinalStone Research, which dismissed the idea of a parallel shift (where all rates move down together).
Instead, CardinalStone points to a fragmented curve; they project a sharp 80bps rise in the 5-7 year bucket as the government manages maturity pressure, a 60bps rise at the 10-year bonds, and a modest 40bps increase at the short end ensures that the "cost of cash" remains high enough to deter FX speculation.
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The FGN 2034 (10-year bond) emerged as the most preferred instrument, recording subscriptions totalling N1.01 trillion against an offer of N400 billion.
This newly introduced JAN 2035 bond (10-year paper saw) had 335 total bids, the highest number of participants across the three offerings. A total of N570 billion worth of it was sold, more than double the N200 billion offered.
The 7-year bond attracted N514.45 billion in subscriptions.
While the DMO has started seeing oversubscription in its debt funding round to bridge the projected N23.85 trillion 2026 fiscal deficit, the crowding-out effect remains a looming shadow over the real economy, as more companies rush to raise equity rather than expensive debt.
Between T-Bills and Bonds, the government has already pulled over N3.8 trillion from the banking system in just three weeks.
