How Nigeria’s fixed income market evolved over six decades

Imagine a man, now 65, who finds it difficult to feed his family, send them to school, and afford basic healthcare. In the language of fixed income, this is Nigeria’s fiscal reality. The increasing cost of debt servicing has become a major problem, consuming a huge share of national revenue.

Recent fiscal data paints a sobering picture. As of September 2024, Nigeria’s external debt had soared to $43 billion – the highest since the country secured debt relief in 2006.

The 2025 national budget allocated N14.3 trillion to debt servicing, a figure that overshadows capital expenditure and reflects how debt repayments are crowding out critical investments in infrastructure, education, and healthcare.

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The challenge isn’t new. Nigeria’s debt servicing costs hit N45.57 trillion between 2010 and 2024. From N400 billion in 2010, debt service costs skyrocketed to an estimated N11.8 trillion in 2024.

The escalation stems from persistent budget deficits, which have necessitated continuous borrowing. Since the government generates most of its revenue in naira but services its external debt in dollars, any depreciation of the naira against the dollar massively inflates the naira cost of debt servicing.

Solid wins

Yet, branding a 65-year-old nation a ‘failure’ ignores the quiet turnaround within its financial system. Like the man who has changed old habits, Nigeria’s fixed-income sector has recorded significant wins, laying foundations for greater resilience.

Establishment of the Debt Management Office (DMO)

The establishment of the Debt Management Office (DMO) in October 2000 was a crucial reform that professionalised sovereign borrowing.

The DMO took over debt functions previously scattered across various ministries and agencies, leading to a coherent, strategic approach to managing the entire public debt portfolio (domestic and external).

Hence, the DMO built a comprehensive strategy for managing both domestic and external debt and developed the Federal Government of Nigeria (FGN) bond yield curve—a benchmark for pricing all other bonds, including corporate and state issuances.

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The DMO has actively pursued strategies to shift the debt mix from costly, short-term instruments (like treasury bills) to longer-dated, more stable FGN bonds, helping to reduce refinancing risk.

Currently, Nigeria is the 6th largest African country in terms of bond issuance, with $65.2 billion in volume and 283 domestic and foreign bond issuances as of August 2025.

Productive reforms

The Pension Revolution, for one, is a win. Perhaps the most transformative reform has been the Pension Reform Act of 2004 (and subsequent amendments). This Act birthed a robust Contributory Pension Scheme (CPS), creating a vast pool of patient, long-term capital.

As of March 2025, pension assets under management (AUM) reached over N23.33 trillion. These funds are the largest domestic holders of FGN Bonds, providing a stable, predictable funding source for the government, giving Nigeria some form of financial self-reliance, and insulating the market from external shocks.

Establishment, growth of FMDQ Group

The creation of the Financial Market Dealers Quotations (FMDQ )Securities Exchange in 2012 was an institutional reform. FMDQ transformed the Nigerian over-the-counter (OTC) financial markets, which are the primary venue for fixed-income trading such as FGN bonds and commercial papers (CPs). This allowed the introduction of electronic trading platforms and made price data and trade information real-time.

FMDQ actively facilitates the listing and trading of new instruments such as CPs and derivatives (such as FX Futures), which help corporate entities raise short-term finance quickly, easing pressure on the banking system and diversifying funding sources away from the government.

Corporate bond market

While sovereign debt dominates, there has been a notable, albeit gradual, expansion of the corporate bond market for both local and international bonds. Companies such as Dangote Cement, MTN Nigeria, and FBNQuest have successfully issued long-term corporate bonds, demonstrating growing investor appetite for non-sovereign risk. This diversification is crucial, allowing private sector entities to raise capital directly from the market, reducing pressure on banks, and expanding avenues for national investment.

Innovation in debt offers

Nigeria has embraced innovative financing instruments such as the issuance of Sovereign Green Bonds in 2017 (the first in Africa) and the Sukuk Bonds in 2019, marking a significant departure from conventional borrowing.

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These instruments have attracted ethical investors and new pools of capital, earmarking funds for specific, impactful projects such as renewable energy and infrastructure, showcasing a more sophisticated, purpose-driven approach to debt. The successful over-subscription of these issuances indicates strong investor confidence in these targeted initiatives.

In 2024, Nigeria issued its first domestic dollar bond, raising $917 million. It was initially aimed at $500 million but was met with overwhelming demand of over 180 percent subscription.

It was honored with the prestigious ‘West Africa Deal of the Year Award’ at the 2025 Global Banking & Markets Africa Awards.