Investor interest in Federal Government of Nigeria bonds has dropped, as concerns about rising interest rates and high inflation continue to affect decisions in the financial markets. According to the Debt Management Office (DMO), the April bond auction witnessed a noticeable reduction in enthusiasm from investors. The development is part of a broader trend where investors are becoming more careful and adopting a wait-and-see approach before committing their funds.
Experts believe that the decline in bond demand is linked to expectations that the Central Bank of Nigeria (CBN) may raise interest rates again. The CBN’s Monetary Policy Committee has been taking steps to address rising inflation, which stood at 33.2% as of March 2025, one of the highest levels recorded in recent years. If the apex bank decides to raise interest rates, new bonds will offer higher returns, making the old ones less attractive to buyers. This is making many investors hold back until the direction of interest rates becomes clearer.
The Director-General of the DMO, Ms. Patience Oniha, has acknowledged the challenge, noting that reduced demand at bond auctions could affect how the government raises money to fund critical projects. The DMO is responsible for managing Nigeria’s public debt, including local and international borrowings, and ensuring that the government has access to sustainable financing.
With lower investor interest, there is a risk that the government may face difficulties in financing infrastructure projects, salaries, and other obligations. Bond sales are a key method through which the government borrows money from the public and institutional investors. If buyers become reluctant, it could lead to funding gaps and delays in government programmes.
The situation is further worsened by the depreciation of the naira, which has lost significant value against the US dollar and other major currencies. As a result, the cost of servicing Nigeria’s foreign debts has increased, putting more pressure on government finances. Many investors are now demanding higher returns to cover the risk of inflation and currency instability.
Some financial analysts, including Mr. Abiola Raji of Vetiva Capital, have suggested that the DMO may need to offer more attractive yields on bonds or consider new strategies, such as longer-term instruments or tapping into the diaspora bond market. These measures could help raise confidence among investors and attract the funding needed.
Meanwhile, stakeholders are closely watching the Central Bank’s next policy decisions. Any changes in the benchmark interest rate could have a direct impact on the bond market. The bond market is a vital part of Nigeria’s financial system and plays a major role in funding government operations, controlling inflation, and shaping economic growth.
At a time when Nigeria is seeking to attract foreign investments and reduce borrowing costs, the low interest in government bonds poses a major challenge. The DMO is expected to review its approach in the coming weeks to adapt to the new realities of the market.
