Nigeria’s Bond Market Booms as Inflation Eases: DMO Auction Sees 603% Oversubscription

The Debt Management Office (DMO) of Nigeria experienced an overwhelming response at its June 2025 bond auction, with investors submitting bids worth ₦602.9 billion against an initial offer of ₦100 billion, a subscription rate of 603%. The auction featured two government bonds maturing in April 2029 and June 2032, both set at ₦50 billion each. This strong interest signals market optimism, as investors anticipate falling inflation and a shift toward more accommodative monetary policy by the Central Bank of Nigeria (CBN).

Stop rates were reduced to 17.75% for the 2029 bond and 17.95% for the 2032 bond, compared to higher rates in previous auctions. FBNQuest attributed the lower yields to improved investor sentiment and recent inflation data, which shows Nigeria’s headline inflation cooling for a second consecutive month—dropping to 22.79% in May from 23.71% in April. This downward trend has led the CBN to maintain a steady policy rate for two meetings in a row.

Despite the local gains, global economic risks remain a concern. The ongoing geopolitical tensions between Iran and Israel and the resurgence of protectionist U.S. trade policies under President Trump could limit the CBN’s flexibility. These uncertainties may support a cautious monetary stance, with analysts projecting only a modest policy rate cut of 50 to 100 basis points by year-end.

Investors were particularly drawn to the longer-term 2032 bond, which attracted ₦561.2 billion in bids—more than eleven times the amount offered—resulting in a ₦99 billion allotment. Meanwhile, the shorter 2029 bond received far less enthusiasm, drawing just ₦41.7 billion in bids and an allotment of ₦1.1 billion. This skew indicates a growing preference for long-duration assets amid expectations of falling rates.

The secondary bond market has also shown a positive response, with yields dropping by about 42 basis points month-to-date to an average of 18.44%. Analysts believe that if inflation continues to ease, the DMO could limit future bond issuances, maintain downward pressure on yields, and ultimately reduce the government’s borrowing costs, offering a stronger outlook for Nigeria’s broader financial stability.

Source: Business day