JP Morgan Introduces FGN Bonds In Newly Launched Emerging Markets Index

The Federal Government has declared that certain Federal Government of Nigeria (FGN) Bonds will be listed in J.P. Morgan’s recently launched Government Bond Index–Emerging Markets Edge (GBI-EM Edge). The Federal Government views this as an important acknowledgment of the nation’s economic reforms and rising investor confidence.
The inclusion of certain FGN bonds in the new benchmark, which tracks local-currency government debt across frontier emerging markets, was revealed by J.P. Morgan, the manager of the most popular emerging market bond indices in the world, according to the Federal Ministry of Finance.

According to the ministry, Nigeria was eligible for inclusion due to the size of its government bond issuances and the liquidity of its domestic bond market.

“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,” it said in a statement on Monday. “Nigeria’s weighting in the index is 7.40 per cent, among the highest of the 26 markets covered and close to J.P. Morgan’s eight per cent maximum country weighting.”

According to the Federal Government, the development is a result of reforms meant to stabilize the naira, reduce the foreign exchange backlog, and enhance more general economic metrics like GDP growth and inflation.

Nigeria was removed from the GBI-EM Global Diversified index in 2015 due to foreign exchange liquidity issues, which the current reform agenda has directly addressed. The inclusion, it said, also represents Nigeria’s return to a J.P. Morgan benchmark for the first time in over ten years.

In 2012, FGN Bonds were initially added to the GBI-EM.

According to the ministry, that inclusion helped attract significant foreign investment into Nigeria’s domestic securities market, reduced issuance costs by approximately 200 basis points.

“The GBI-EM Edge tracks approximately $328 billion in local-currency government debt globally. Nigeria’s 7.40 per cent allocation represents roughly $17.47 billion of eligible FGN debt across 16 instruments,” it stated. “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.”

Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, while reacting to the development, said it represented an independent assessment of the progress made through the Federal Government’s reform programme.

“This inclusion is a clear, independent endorsement of the discipline behind President Bola Tinubu’s reform agenda,” Oyedele was quoted as saying. “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.”