Nigeria Returns to JP Morgan Bond Index After 11 Years

Nigeria has returned to a JP Morgan emerging-market bond index 11 years after the country was removed from the investment bank’s flagship benchmark.

The development follows the inclusion of selected Federal Government of Nigeria bonds in JP Morgan’s newly introduced Government Bond Index–Emerging Markets Edge, known as GBI-EM Edge.

Nigeria has been assigned a 7.4 per cent weighting in the new index, placing it among the largest country allocations. Eligible Nigerian government bonds worth about $17.47 billion are represented across 16 instruments.

The inclusion is expected to increase the visibility of Nigeria’s naira-denominated government securities among international fixed-income investors who track JP Morgan’s indices.

Finance Minister and Coordinating Minister of the Economy, Taiwo Oyedele, described the development as significant for Nigeria’s capital market, saying the country had been absent from the JP Morgan benchmark for 11 years.

The new index tracks local-currency government debt across 26 frontier and emerging markets, with about $328 billion in securities represented across 425 instruments and 24 currencies.

For Nigeria, the return could help deepen the domestic debt market and attract additional foreign portfolio investment. It could also contribute to lower borrowing costs if demand for Nigerian government securities increases.

Nigeria was initially included in JP Morgan’s Government Bond Index in October 2012. However, the country was removed from the benchmark in 2015 amid concerns over foreign-exchange market liquidity, restrictions and the difficulty foreign investors faced in accessing and repatriating funds.

The latest development follows reforms to Nigeria’s foreign-exchange market and efforts by the authorities to improve transparency, liquidity and accessibility for international investors.

However, Nigeria’s inclusion in the GBI-EM Edge does not mean it has been reinstated in JP Morgan’s flagship GBI-EM Global Diversified index. The new benchmark is a separate index designed to track local-currency government bonds from frontier markets that are not adequately represented in mainstream emerging-market benchmarks.

The development nevertheless represents a renewed connection between Nigeria’s domestic bond market and global institutional investors.

With Nigerian government securities carrying relatively high yields compared with many international markets, analysts expect the country’s inclusion to strengthen investor interest while providing the government with a potentially broader pool of investors for domestic borrowing.