Nigeria is set to return to a J.P. Morgan government bond index, nearly 11 years after the country was removed from the financial institution’s emerging-market benchmark.
Gatekeepers News reports that J.P. Morgan has included Nigeria in its new Government Bond Index–Emerging Markets Edge (GBI-EM Edge), assigning the country a 7.4 percent weighting.
The index, which is expected to be launched by the end of September, will track local-currency government bonds across frontier markets, Reuters reported on Monday.
The new benchmark is expected to cover about $330 billion in local-currency government debt across 26 countries, with Nigeria listed among its major constituents alongside Egypt, Vietnam, Morocco, Kazakhstan, Bangladesh, Pakistan and Sri Lanka.
J.P. Morgan has set a maximum country weighting of 8 percent for the index.
Nigeria’s 7.4 percent allocation would make it one of the largest markets in the benchmark and could increase the visibility of its domestic government securities among global fixed-income investors.
The development comes almost 11 years after Nigeria was removed from J.P. Morgan’s GBI-EM in 2015.
According to Reuters, J.P. Morgan has been developing the new index for several years as investor interest in high-yielding government debt in frontier markets continues to grow.
The index is expected to include government bonds with a minimum equivalent value of $250 million and at least 2.5 years to maturity.
African markets are projected to account for almost 45 percent of the index, while frontier Asian markets are expected to make up nearly one-third.
The benchmark is expected to have an average nominal yield of about 10.4 percent, approximately 440 basis points higher than J.P. Morgan’s mainstream emerging-market local-currency index.
Reuters said back-testing showed that the new index would have delivered returns about 1.2 percentage points higher than the mainstream emerging-market local-currency index since the end of 2017.
Bond indices are closely monitored by global fund managers because they serve as benchmarks for investment allocation across markets.
The development comes months after the federal government disclosed that it was in discussions with J.P. Morgan over Nigeria’s return to its government bond index for emerging markets.
