Nigeria’s Bonds Make Return to Major J.P. Morgan Index After 10 Years
By Patience Ikpeme
Nigeria has recorded a major win on the global investment stage, as J.P. Morgan has included Federal Government of Nigeria (FGN) Bonds in its newly launched Government Bond Index–Emerging Markets Edge, known as GBI-EM Edge.
This marks the country’s return to a major J.P. Morgan benchmark for the first time in over a decade, following its exit from a similar index in 2015.
The Federal Ministry of Finance says Nigeria earned its place on the new index because of ongoing economic reforms, including the stabilisation of the naira, the clearing of foreign exchange backlogs that had built up over the years, and steady improvement in the country’s growth and inflation figures.
To qualify, Nigeria had to meet two key requirements. The first was liquidity, meaning its bonds must be easy to trade, which the country achieved through what is known as a Two-Way Quote System. The second was issuance size, and Nigeria’s outstanding bonds were found to be well above the $250 million minimum required per bond type.
Nigeria now holds a 7.40 percent weighting in the index, one of the highest among the 26 countries covered, and just under the 8 percent maximum allowed for any single country. This translates to about $17.47 billion in eligible FGN bonds spread across 16 different instruments, out of the index’s total $328 billion in tracked government debt worldwide.
Officials note that this is not the first time such an inclusion has benefited Nigeria. When FGN Bonds first joined a similar J.P. Morgan index in 2012, it drew significant foreign investment into the country and helped cut borrowing costs by about 200 basis points, while also opening the equities and banking sectors to more foreign capital.
With the new inclusion, fund managers who track the GBI-EM Edge are expected to adjust their portfolios to reflect Nigeria’s weighting, a move that should bring more foreign money into the domestic bond market. Analysts say this could gradually push bond yields down, easing the government’s cost of servicing naira debt, and may eventually have a positive ripple effect on other parts of the debt market, including Treasury Bills.
Reacting to the development, the Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, said, “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. We remain focused on the work still required to earn full reinstatement in J.P. Morgan’s flagship index.”
The Federal Ministry of Finance says the government will continue pursuing reforms aimed at rebuilding investor trust and eventually securing full reinstatement in J.P. Morgan’s main benchmark index.
