Nigeria’s naira-denominated government bonds are reentering a J.P. Morgan bond benchmark more than a decade after the country was dropped from the global investment bank’s flagship emerging-market index.
J.P. Morgan has included Nigerian government bonds with a 7.4 per cent weighting in its new Government Bond Index–Emerging Markets Edge (GBI-EM Edge), a benchmark for local currency government debt in frontier and emerging markets.
The new index covers about $328 billion in local-currency government debt in 26 markets, including Nigeria among its larger members. Index research by J.P. Morgan on Sept. 14 showed that 16 Nigerian government bonds with a value of about $17.47 billion are eligible for inclusion.
Nigeria’s 7.4 per cent allocation is close to the maximum country weight of 8 per cent in the index.
The move marks the first time that Nigerian government bonds have been added to a J.P. Morgan benchmark since the country was dropped from the bank’s GBI-EM Global Diversified index in 2015 due to foreign-exchange liquidity constraints. Nigeria was first included in the GBI-EM in 2012
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J.P. Morgan established criteria for eligible government securities to be sufficiently liquid and large.
The Federal Government said Nigerian FGN bonds are actively traded on a two-way quote basis and outstanding bond volumes for the eligible tenors are above the minimum US$250 million required for inclusion in the new index.
The government attributed Nigeria’s return to improvements in the foreign-exchange market and other economic reforms, including the stabilization of the naira and the clearing of outstanding FX obligations. Finance Minister and Coordinating Minister of the Economy, Taiwo Oyedele said the inclusion was a sign of increased international confidence in Nigeria’s economic management.
The government also hopes the development will stimulate demand for Nigerian government securities and possibly lower borrowing costs as investors tracking the benchmark rebalance their portfolios. But the $17.47 billion is the value of eligible Nigerian bonds in the index, not an automatic $17.47 billion inflow of new foreign money into Nigeria. The actual amount of new money that flows will depend on how funds that track or benchmark to the index respond. Expect new GBI-EMEdge to launch by end of September.
