Yields on Nigerian government bonds rose sharply in the secondary market as investors reduced exposure ahead of anticipated supply pressures from upcoming debt auctions and mounting fiscal concerns.
Sell-Off Intensifies Ahead of Fresh Bond Supply
The bond market experienced heightened selling activity as investors moved to lock in gains before the Debt Management Office’s next round of issuance. Market participants are pricing in a heavier supply of government securities in the first quarter of 2026, driven by a widening budget deficit and increased borrowing requirements.
Analysts say the federal government is expected to rely on a mix of domestic and external funding to close the fiscal gap, raising concerns about market saturation and yield repricing.
Drawing from issuance patterns observed in the previous year, authorities are widely expected to front-load domestic borrowing. This strategy is being considered against the backdrop of rising inflation risks linked to base effects, which could keep the monetary policy rate elevated for longer than previously anticipated.
Weak Sentiment Drives Yields Higher Across the Curve
As expectations of higher stop rates gained traction, investors began trimming bond holdings, particularly ahead of Q1-2026 auctions. The result was subdued demand and increased offers across the curve.
Trading activity last week reflected the typically cautious tone seen at the start of the year, with weak risk appetite triggering broad sell-offs. Yield increases were most pronounced at the short- and mid-tenor segments of the curve.
Midweek sentiment deteriorated further following the outcome of a larger-than-expected Treasury bills auction, where stop rates cleared at higher levels across maturities. This development prompted investors to reassess relative value across fixed-income instruments and rotate away from longer-dated bonds.
Belly of the Curve Records Sharp Repricing
Selling pressure was particularly evident in the mid-section of the yield curve. Federal Government of Nigeria (FGN) bonds maturing in 2031, 2032, and 2033 recorded yield increases ranging between 8 basis points and 50 basis points, closing within the 17.45 percent to 17.63 percent range.
Market participants attributed the repricing to expectations of continued supply pressure and elevated interest rates, which have dampened demand for duration risk.
By the close of the week, cautious sentiment remained dominant, with trading volumes thin and skewed heavily toward the offer side. According to data from AIICO Capital Limited, the average benchmark bond yield rose by 21 basis points week-on-week to settle at 16.76 percent.
