FG Leans on Domestic Investors to Bridge Funding Gap: Implications for Nigeria’s Fixed Income Market
The Federal Government (FG) has increasingly relied on domestic investors to fund its borrowing needs, shaping the dynamics of Nigeria’s fixed income market, a recent Afrinvest report reveals. Amid elevated fiscal deficits, limited access to external financing, and ongoing macroeconomic stabilization efforts, domestic debt markets have emerged as the primary channel for government funding.
Rather than expanding long-term bond issuance, the FG has focused on short-term borrowing, primarily through Nigerian Treasury Bills (NT-Bills). A significant portion of these instruments has been directed toward refinancing maturing obligations, creating a high-frequency issuance cycle that keeps short-term supply elevated. This approach reflects a pragmatic strategy aimed at reducing exposure to external funding risks while maintaining access to a reliable domestic investor base.
The strategy has coincided with structurally tight liquidity in the financial system. Active liquidity management by the Central Bank of Nigeria (CBN), including frequent sterilization operations, has limited surplus funds, keeping short-term market rates near policy bounds. This persistent front-end borrowing has supported elevated NT-Bill yields, often surpassing those on longer-dated Federal Government of Nigeria (FGN) bonds.
Despite these challenges, investor demand has remained strong. Domestic institutions—banks, pension funds, and asset managers—have continued to absorb the supply, drawn by attractive yields, low credit risk, and liquidity advantages. For many, NT-Bills provide an efficient tool to manage liquidity and generate returns, especially amid uncertainty around policy easing and disinflation trends.
Looking ahead, the sustainability of this domestic-focused funding approach will be critical. While Nigeria’s local markets have so far demonstrated resilience, ongoing fiscal pressures and liquidity constraints suggest that fixed income performance will favor selective positioning, efficient carry, and cautious duration exposure until more clarity emerges on policy direction and long-term funding diversification.
source: The Sun