Key Points
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Nigerian bond yields surged sharply on growing budget deficit worries.
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Budget pressures quickly lifted Nigerian bond yields across markets.
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Investors trimmed exposure to local government debt holdings.
Investors in Nigeria’s government bonds were forced to sell more in the secondary market after Treasury bill rates rose unexpectedly, which made investors nervous and made them worry even more about the country’s growing fiscal gap.
The selloff got worse because people thought the government would borrow more money at home in 2026 to cover a projected N20.10 trillion budget deficit. Analysts say this will put a lot more pressure on the supply of debt in the local market.
Traders said that the sudden drop in the prices of short-term bills forced portfolio realignments across the curve because investors had to deal with higher funding costs and more issuance risks.
The growing deficit makes funding worries worse
People in the market are paying more and more attention to how much Nigeria will need to borrow in the near future. After the government’s most recent trip abroad, analysts are now mostly ruling out another Eurobond issue.
Instead, the burden is likely to shift more to domestic markets. Officials have already started issuing more Treasury bills, and the central bank has raised short-term funding by about N1.085 trillion to meet immediate fiscal needs.
Analysts say that the https://www.dmo.gov.ng/ is likely to raise the amount of bonds it sells above 2025 levels, even though it ignores falling inflation rates in order to offer yields that are high enough to attract local investors.
Shock from Treasury bills shakes up the bond curve
The Central Bank of Nigeria set the price of one-year Treasury bills at 17.50% at last week’s primary market auction. This was higher than the yields on some bonds with longer maturities. The mismatch quickly spread to the secondary market.
There wasn’t much action in trading at the start of the week, with only a little buying of short- and mid-term bonds. There were few trades and slow selloffs at the long end. Things got worse after the Treasury bill auction because investors became more cautious and changed the price of risk.
Anchoria Securities said the change was due to “higher stop rates at the NTB auction and worries about the big budget deficit in 2026.”
AIICO Capital also said that changes to auction calendars and bill prices made yields go up on mid-tenor bonds.
Yields go up as the curve changes shape
On the 20th of November 2029, the 23rd of July 2029, and the 21st of February 2031 bonds, yields rose by 19bps (16.02%), 42bps (16.27%), and 62bps (16.49%), respectively.
On the other hand, the 22-Jan-2036 and 20-Mar-2026 bonds didn’t get as much interest, and their yields went down by 33bps and 26bps, respectively.
The benchmark yield went up 2 basis points from week to week, ending at 15.64%.
Cordros Capital said that an off-calendar NTB auction that is expected to happen next week will be very important for shaping short-term sentiment, as investors adjust their positions based on the government’s changing funding strategy.
