J.P. Morgan has included selected Federal Government of Nigeria (FGN) bonds in its newly introduced Government Bond Index–Emerging Markets Edge (GBI-EM Edge), in a development expected to boost foreign investment and liquidity in Nigeria’s domestic debt market.
The inclusion places Nigeria among 26 markets covered by the benchmark, which tracks local-currency government debt across frontier emerging markets.
According to the Federal Ministry of Finance, Nigeria’s inclusion reflects improvements in the country’s economic environment, including the stabilisation of the naira, clearance of foreign exchange backlogs and broader improvements in economic growth and inflation.
The ministry said Nigeria met key eligibility requirements for the index, particularly in the areas of market liquidity and the size of outstanding government bond issues.
FGN bonds are actively traded under a Two-Way Quote System, while outstanding volumes across eligible tenors are said to be above the $250 million minimum required for inclusion in the GBI-EM Edge.
Nigeria has been assigned a 7.40 per cent weighting in the index, one of the highest among the 26 markets covered and close to J.P. Morgan’s maximum country weighting of eight per cent.
The development marks Nigeria’s return to a J.P. Morgan benchmark more than a decade after the country exited the GBI-EM Global Diversified index in 2015, following challenges associated with foreign exchange liquidity.
FGN bonds were first included in the GBI-EM in 2012, a move that attracted significant foreign investment into Nigeria’s domestic securities market.
The previous inclusion also helped reduce the government’s cost of bond issuance by about 200 basis points, while facilitating greater foreign capital participation in the equities and banking sectors and supporting the country’s external reserves.
$17.47bn FGN debt eligible
The GBI-EM Edge tracks about $328 billion worth of local-currency government debt globally.
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With Nigeria assigned a 7.40 per cent weighting, about $17.47 billion of eligible FGN debt across 16 instruments is expected to be represented in the index.
The Federal Ministry of Finance said index-tracking funds would be expected to adjust their portfolios to reflect Nigeria’s weighting, potentially generating additional foreign portfolio inflows into the domestic bond market over time.
The increased demand for FGN bonds is also expected to support bond prices and contribute to a gradual compression of yields.
Such a development could, in turn, help reduce the government’s cost of servicing naira-denominated debt.
The ministry further noted that improved liquidity in the FGN bond market could have positive spillover effects on the wider domestic debt market, including Nigerian Treasury Bills, although the index itself focuses on mid- to long-term government bonds.
Clear endorsement of reforms’
Reacting to the development, the Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, described Nigeria’s inclusion as an independent endorsement of the Federal Government’s economic reform programme.
Oyedele said the development reflected the confidence international capital markets had placed in Nigeria’s economic management.
“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,” he said.
He, however, acknowledged that more work remained to be done before Nigeria could secure full reinstatement in J.P. Morgan’s flagship index.
“We remain focused on the work still required to earn full reinstatement in J.P. Morgan’s flagship index,” the minister added.
The Federal Government said it remained committed to sustaining its reform agenda and deepening investor confidence in Nigeria’s domestic capital market.
