Nigeria has returned to a JP Morgan emerging-market bond index for the first time in 11 years, with selected Federal Government of Nigeria (FGN) bonds included in the newly launched Government Bond Index–Emerging Markets (GBI-EM) Edge.
The Federal Ministry of Finance announced the development in a statement on Monday, describing it as Nigeria’s first return to a JP Morgan benchmark since the country was removed from the GBI-EM Global Diversified index in 2015.
“This inclusion represents Nigeria’s return to a JP Morgan benchmark for the first time in over a decade, following its exit from the GBI-EM Global Diversified index in 2015 amid foreign exchange liquidity constraints which the current reform agenda has directly addressed,” the ministry said.
Nigeria was admitted to JP Morgan’s emerging-market bond index in 2012 but was removed three years later amid foreign exchange liquidity constraints.
Under the latest development, selected FGN bonds have been included in the GBI-EM Edge, which tracks local-currency government debt across frontier emerging markets.
Nigeria has been assigned a 7.40 per cent weighting, among the highest of the 26 markets covered by the index and close to JP Morgan’s maximum country weighting of eight per cent.
The ministry said Nigeria met two key eligibility requirements: market liquidity and the size of outstanding bond issuances.
“Nigeria qualified on two key measures: liquidity, with FGN Bonds actively traded under a Two-Way Quote System, and issuance size, with outstanding volumes per tenor well above the USD 250 million minimum required for the GBI-EM Edge,” the statement said.
The ministry attributed Nigeria’s return to economic reforms that it said had helped stabilise the naira, clear the foreign exchange backlog and improve overall market conditions.
Nigeria’s previous inclusion in the JP Morgan benchmark in 2012 attracted significant foreign investment into the domestic securities market and helped reduce the government’s borrowing costs by about 200 basis points, according to the ministry.
It said the inclusion also supported foreign capital inflows into the equities and banking sectors and contributed to growth in the country’s external reserves.
The government expects the latest inclusion to attract additional foreign portfolio investment into Nigeria’s debt market as global funds adjust their holdings to reflect the country’s new index weighting.
According to the ministry, the GBI-EM Edge tracks about $328 billion in local-currency government debt globally, while Nigeria’s 7.40 per cent allocation represents about $17.47 billion of eligible FGN debt across 16 instruments.
“Index-tracking funds are expected to adjust their portfolios to reflect Nigeria’s weighting, which should channel additional foreign portfolio inflows into the domestic bond market over time,” the ministry said.
It added that stronger demand from foreign institutional investors could support bond prices and gradually lower domestic yields, potentially reducing the Federal Government’s cost of servicing naira-denominated debt.
Greater activity in the FGN bond market could also improve liquidity across other segments of the domestic debt market, including Nigerian Treasury Bills, the ministry said.
The Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, described Nigeria’s inclusion as an endorsement of the Federal Government’s economic reforms.
“This inclusion is a clear, independent endorsement of the discipline behind President Bola Ahmed Tinubu’s reform agenda. It reflects the confidence international capital markets now place in Nigeria’s economic management, and it lowers the cost of financing our development priorities,” Oyedele said.
He said, however, that the government would continue working towards Nigeria’s return to JP Morgan’s main emerging-market bond index.
“We remain focused on the work still required to earn full reinstatement in J.P. Morgan’s flagship index,” he added.
