Nigeria is returning to a J.P. Morgan local currency bond benchmark more than a decade after its removal, with the country assigned a 7.4% weighting in the newly introduced Government Bond Index Emerging Markets Edge, or GBI EM Edge. The benchmark is designed to track government debt across frontier and emerging markets and is expected to cover approximately $328 billion in local currency debt across 26 markets. Nigeria’s allocation is close to J.P. Morgan’s eight per cent country cap, making it one of the largest components of the new index.
The inclusion covers 16 eligible Federal Government of Nigeria bonds with a combined value of approximately $17.47 billion. According to J.P. Morgan’s September 14 Global Index Research report and ChannelsTv, Nigeria qualified based on measures including bond liquidity and issuance size, with the eligible securities meeting the benchmark’s minimum requirements. The Nigerian securities have an average yield to maturity of about 17.1% and an average duration of 3.38 years.
The development marks Nigeria’s return to a J.P. Morgan government bond benchmark after it was removed from the bank’s flagship GBI EM Global Diversified index in 2015 amid foreign exchange liquidity constraints. The Federal Government has linked the latest inclusion to reforms in the foreign exchange market, including efforts to improve liquidity and clear outstanding FX obligations. J.P. Morgan’s new benchmark will also have a significant African component, with African markets accounting for almost 45% of the index, according to Reuters and Business Insider Africa.
The inclusion increases the visibility of Nigerian government securities among international fixed income investors and could create additional demand from funds that benchmark against the new index. That could support liquidity and, if sustained, place downward pressure on borrowing costs, although the 7.4% weighting should not be interpreted as an automatic $17.47 billion capital inflow. Finance Minister Taiwo Oyedele said the development reflects renewed confidence in Nigeria’s economic management and could help reduce financing costs. The longer term significance will depend on whether Nigeria can maintain FX liquidity, deepen its domestic bond market and sustain the reforms required for broader participation in international fixed income benchmarks.
