N20trn Budget Deficit: Nigerian Bonds Selloffs Push Yields Up
The Federal Government of Nigeria (FGN) bonds faced sell pressures in the secondary market as a spot rate hike on local treasury bills stoked a selloff.
The market also anticipates an increase in local borrowing from the debt capital market in 2026 due to a huge budget deficit totalling N20.10 trillion.
The sizeable budget deficit of more than N20 trillion continues to heighten uncertainty around the government’s near-term funding requirements and supply pressures.
Bond supply via primary market auctions will increase in 2026 as some analysts begin to rule out another Eurobond raise after the recent outing.
There is an apparent signal the government’s fiscal performance is still tight, as the monetary authority stepped up its treasury bills raise by N1.085 trillion to meet government short-term funding needs.
Debt Management Office (DMO) is anticipated to increase its bond supply above 2025 level amidst signals that the authority will continue to ignore disinflation in spot rates pricing to attract investors’ money to close budget deficit.
Total borrowing will be heavy during the first half, analysts told MarketForces Africa in private chats, saying it normal to see quick and speedy domestic debt climbing pre-election.
With this expectation and year-end portfolio adjustment, the market sentiment was broadly negative – fixed-income market participants reacted to the surprise spot rate hike in the treasury bills space.
At the primary market auction last week, the Central Bank priced a one-year Treasury bill at 17.50%, significantly higher when compared with a much longer tenor at the bonds market.
The market traded with a broadly cautious tone throughout the week. Activity opened on a subdued note, with mild buying interest concentrated at the short-to-mid segment of the curve, while the long end experienced limited flows and marginal sell-offs.
This calm trading pattern continued into mid-week, with yields largely steady as investors shifted focus to the NTB auction. Market conditions shifted slightly on thereafter, as a mixed but mostly bearish session emerged.
“This can be partly attributed to the higher Nigerian Treasury bills auction stop rates and concerns around the sizable 2026 budget deficit estimated at ₦20.10 trillion,” Anchoria Securities Limited told investors in a note.
AIICO Capital Limited explained that repricing in the mid-tenor segment—driven by the outcome of the Treasury bills auction and the release of the revised auction calendar—pushed yields higher.
The market saw notable yield expansion on the 20-Nov-2029, 23-Jul-2029 and 21-Feb-2031 bonds, which rose significantly by 19 bps (16.02%), 42 bps (16.27%) and 62 bps (16.49%), respectively.
Conversely, the 22-Jan-2036 and 20-Mar-2026 bonds saw mild demand as yields declined by -33 bps and -26 bps, respectively, amidst muted activity at the mid-to-long end of the curve.
The week concluded quietly with pockets of demand reappearing in the short-to-mid tenors even as quotes adjusted upward across the curve.
Overall, the average benchmark yield rose by 2 basis points week on week, closing at 15.64%. Analysts anticipate sustained investors sentiment in the domestic space in the near term.
“We expect the off-calendar NTB auction next week to shape trading conditions in the FGN bond secondary market, as market participants recalibrate their positioning in response to potential yield signals and the DMO’s near-term funding posture,” Cordros Capital Limited said in a note.
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