Before the re-emergence of the Bond market in 2003, high-interest bank loans were the primary source of funding for businesses and the government in Nigeria. Over time, Bonds and Commercial Papers (CPs) became alternative financing tools for addressing annual budget deficits. While Bonds typically offer periodic coupon payments, CPs do not, making them less attractive in a high-yield environment.

Recently, Nigerian companies have relied heavily on Bonds and CPs to fund their working capital and operations. However, this trend is shifting. Recent data from FMDQ Securities Exchange Limited shows a dramatic decline in the issuance of Corporate Bonds and CPs by Nigerian companies.

The value of Corporate Bonds issued by Nigerian companies plummeted by 98% between the last quarter of 2022 (Q4) and the first quarter of 2024 (Q1). Specifically, the value dropped from N249.4 billion in Q4 2022 to N5.5 billion in Q1 2024. Similarly, the issuance of CPs fell by 38%, from N537.47 billion in Q1 2023 to N331.81 billion in Q1 2024.

This significant decline is linked to high yield demands by lenders, reflecting a cautious stance in Nigeria’s Bond market. The Central Bank of Nigeria’s (CBN) aggressive monetary policy, aimed at reducing financial system liquidity and curbing inflation, has led to a rise in yields on both government and private instruments in the fixed income market.

In March 2024, the yield on one-year Nigerian Treasury bills surged to 26.76% from 9% in January 2024, peaking at 27.33% in March.

Generally, the rise in interest rates has significantly impacted the issuance of CPs and Bonds in Nigeria, making these financial instruments less attractive to investors and increasing the cost of borrowing for businesses. This has forced companies to seek alternative financing options in an environment of high yields and cautious lending.