J.P. Morgan returns Nigeria to bond index after 11 years

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…$17.47bn FGN debt eligible
…Nigeria gets 7.4% weighting

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By Emma Ujah, Abuja Bureau Chief

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ABUJA — Nigeria is set to attract fresh foreign capital into its domestic debt market following the decision by global investment banking giant, J.P. Morgan, to return Federal Government of Nigeria (FGN) bonds to its bond index under the newly introduced Government Bond Index–Emerging Markets Edge (GBI-EM Edge).

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The development is expected to boost demand for Nigerian government securities, deepen liquidity in the bond market and, over time, help drive down domestic borrowing costs as global index-tracking funds adjust their portfolios to accommodate Nigeria’s new 7.40 per cent weighting.

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The GBI-EM Edge, managed by J.P. Morgan, one of the world’s widely followed emerging-market bond index providers, tracks local-currency government debt across frontier emerging markets.

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Nigeria’s inclusion is particularly significant as it marks the country’s return to a J.P. Morgan benchmark for the first time in more than a decade.

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Nigeria exited the GBI-EM Global Diversified Index in 2015 amid foreign exchange liquidity constraints.

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The Federal Government said reforms undertaken in recent years, particularly the stabilisation of the naira and clearance of foreign exchange backlogs, had helped address some of the factors that previously constrained Nigeria’s participation.

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According to a statement by the Federal Ministry of Finance announcing the development on Monday, Nigeria met key eligibility requirements for inclusion in the new index, particularly in the areas of market liquidity and the size of outstanding bond issues.

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The ministry said FGN bonds were actively traded under a Two-Way Quote System, while outstanding volumes across eligible tenors were significantly above the $250 million minimum required for inclusion in the GBI-EM Edge.

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With a 7.40 per cent weighting, Nigeria ranks among the highest-weighted of the 26 markets covered by the index and is close to J.P. Morgan’s maximum country weighting of eight per cent.

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The index tracks approximately $328 billion worth of local-currency government debt globally.

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Nigeria’s allocation translates to roughly $17.47 billion of eligible FGN debt across 16 instruments.

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The inclusion is expected to result in additional foreign portfolio inflows as funds tracking the index rebalance their portfolios in line with Nigeria’s new weighting.

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The increased demand is also expected to support FGN bond prices and gradually compress yields, thereby reducing the government’s cost of servicing naira-denominated debt.

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Beyond FGN bonds, improved liquidity in the government securities market could have wider positive effects across the domestic debt market, including Nigerian Treasury Bills and other fixed-income instruments.

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The Federal Government described the development as an independent endorsement of its economic reform programme under President Bola Tinubu.

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Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, said the decision reflected growing confidence in Nigeria’s economic management.

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According to him, the development would help lower the cost of financing the government’s development priorities.

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Oyedele said: “This inclusion is a clear, independent endorsement of the discipline behind President Bola Ahmed Tinubu’s reform agenda.

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“It reflects the confidence international capital markets now place in Nigeria’s economic management, and it lowers the cost of financing our development priorities.”

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He noted that the government remained focused on further reforms needed to secure Nigeria’s full reinstatement in J.P. Morgan’s flagship index.

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The latest development is also significant in view of Nigeria’s earlier experience with the GBI-EM.

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FGN bonds were first included in the J.P. Morgan GBI-EM in 2012, a move that attracted substantial foreign investment into the domestic securities market.

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The earlier inclusion was credited with helping to reduce Nigeria’s cost of debt issuance by about 200 basis points, while also opening the equities and banking sectors to greater foreign capital participation and supporting the country’s external reserves.

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The Federal Government said it remained committed to sustaining the reform agenda and deepening investor confidence in Nigeria’s domestic financial market.

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The inclusion comes amid efforts by the authorities to strengthen macroeconomic stability, restore investor confidence and reposition Nigeria as a more attractive destination for international capital.

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