Nigeria rejoins JP Morgan bond index after 11 years

Nigeria has re-entered a JP Morgan emerging-market bond index 11 years after it was removed, 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 on Monday, describing it as Nigeria’s first return to a JP Morgan benchmark since 2015.

The ministry said the development reflected improvements in Nigeria’s foreign exchange market and domestic bond market following recent economic reforms.

Nigeria earns 7.40% index weighting

According to the ministry, selected FGN bonds have been included in the new GBI-EM Edge, which tracks local-currency government debt across frontier emerging markets.

Nigeria received a 7.40 per cent weighting, placing it among the highest-weighted 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 major eligibility requirements for inclusion: market liquidity and the size of outstanding bond issuances.

It said FGN bonds were actively traded under a Two-Way Quote System, while outstanding volumes across maturities were significantly above the $250m minimum required for the index.

The government said Nigeria’s renewed inclusion followed reforms that had helped stabilise the naira, clear the foreign exchange backlog and improve broader economic conditions.

From exclusion to renewed market access

JP Morgan removed Nigeria from its Government Bond Index-Emerging Markets in 2015, three years after the country was admitted to the benchmark.

The Ministry of Finance recalled that Nigeria’s initial inclusion in 2012 attracted substantial foreign investment into the domestic securities market and reduced the cost of government borrowing by about 200 basis points.

It also said the earlier inclusion encouraged foreign capital inflows into the equities and banking sectors and contributed to the growth of Nigeria’s external reserves.

The latest development is expected to generate additional foreign portfolio investment into the Nigerian debt market.

According to the ministry, the GBI-EM Edge tracks about $328bn in local-currency government debt globally, while Nigeria’s 7.40 per cent allocation represents approximately $17.47bn of eligible FGN debt spread across 16 instruments.

Foreign investors expected to boost bond demand

The ministry said index-tracking funds were expected to adjust their portfolios to reflect Nigeria’s new weighting, potentially generating additional foreign portfolio inflows into the domestic bond market.

It added that increased demand from foreign institutional investors could strengthen bond prices and gradually reduce domestic yields.

Such a development, the ministry said, could potentially lower the Federal Government’s cost of servicing naira-denominated debt.

The government also expects increased trading activity in FGN bonds to improve liquidity across other segments of the domestic debt market, including Nigerian Treasury Bills.

Oyedele targets full JP Morgan reinstatement

The Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, described the inclusion as an independent endorsement of the Federal Government’s economic reform programme.

Oyedele said the development reflected increased confidence in Nigeria’s economic management and would help lower the cost of financing the country’s development priorities.

He, however, said the government would continue working towards Nigeria’s full return to JP Morgan’s flagship emerging-market bond index.

“We remain focused on the work still required to earn full reinstatement in J.P. Morgan’s flagship index,” Oyedele said.