Nigeria has returned to a JP Morgan emerging-market bond index 11 years after its exit, following the inclusion of selected Federal Government of Nigeria bonds in the newly launched Government Bond Index–Emerging Markets Edge.
The Federal Ministry of Finance announced the development in a statement issued on Monday, describing it as Nigeria’s first return to a JP Morgan benchmark since 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.
JP Morgan removed Nigeria from its Government Bond Index-Emerging Markets in 2015, three years after the country was admitted into the benchmark.
According to the ministry, selected FGN bonds have now been included in the new GBI-EM Edge, which tracks local-currency government debt across frontier emerging markets.
Nigeria was assigned a 7.40 per cent weighting, one of the highest among 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 major eligibility requirements covering 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 read.
It attributed the country’s return to reforms which it said had helped stabilise the naira, clear the foreign exchange backlog and improve economic conditions.
The ministry said Nigeria’s previous inclusion in JP Morgan’s emerging-market bond index in 2012 attracted significant foreign investment into the domestic securities market and reduced the cost of government borrowing by about 200 basis points.
It added that the earlier inclusion supported foreign capital inflows into the equities and banking sectors and contributed to the growth of external reserves.
The government expects the latest development to generate additional foreign portfolio inflows into the Nigerian debt market.
According to the statement, the GBI-EM Edge tracks about $328bn in local-currency government debt globally, while Nigeria’s 7.40 per cent allocation represents about $17.47bn of eligible FGN debt spread 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 increased demand from foreign institutional investors could strengthen bond prices and gradually reduce domestic yields, potentially lowering the Federal Government’s cost of servicing naira-denominated debt.
The ministry also expects increased activity in the FGN bond market to improve liquidity in other segments of the domestic debt market, including Nigerian Treasury Bills.
The Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, described the 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, however, said the government would continue working towards Nigeria’s return to J.P. 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.
