J.P. Morgan Lists FGN Bonds in New Emerging Markets Bond Index
J.P. Morgan has announced the inclusion of selected Federal Government of Nigeria Bonds in its newly introduced Government Bond Index Emerging Markets Edge, a benchmark that tracks local currency government debt across frontier emerging markets. The index is one of the world’s most widely tracked emerging market bond indices.
The inclusion reflects the impact of ongoing economic reforms including the stabilisation of the naira, clearance of foreign exchange backlog and improvements in growth and inflation which have strengthened investor confidence in Nigeria’s domestic debt market.
Nigeria qualified based on liquidity, with FGN Bonds actively traded under a Two Way Quote System, and issuance size, with outstanding volumes per tenor well above the 250 million dollars minimum required. Nigeria’s weighting in the index is 7.40 percent, among the highest of the 26 markets covered and close to J.P. Morgan’s 8 percent maximum country cap.
This marks Nigeria’s return to a J.P. Morgan benchmark for the first time in over a decade, following its exit from the GBI-EM Global Diversified index in 2015 due to foreign exchange liquidity constraints.
FGN Bonds were first included in the GBI-EM in 2012, a move that drew significant foreign investment, reduced cost of issuance by about 200 basis points and opened the equities and banking sector to foreign capital.
The GBI-EM Edge tracks about 328 billion dollars in local currency government debt globally. Nigeria’s 7.40 percent allocation represents roughly 17.47 billion dollars 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 inflows into the domestic bond market over time.
The increased foreign institutional demand is expected to support bond prices and gradually ease domestic yields, helping to moderate government’s cost of servicing naira denominated debt. Improved liquidity in the FGN bond market is also expected to have positive effects across the wider debt market including Nigerian Treasury Bills over time.
Reacting to the development, the Honourable Minister of Finance and Coordinating Minister of the Economy, Mr. Taiwo Oyedele, said the inclusion is a clear independent endorsement of the discipline behind President Bola Ahmed Tinubu’s reform agenda.
He said it reflects the confidence international capital markets now place in Nigeria’s economic management and will lower the cost of financing development priorities. He added that government remains focused on work required to earn full reinstatement in J.P. Morgan’s flagship index.
The Federal Government remains committed to sustaining the reform agenda and deepening investor confidence in the domestic market
