Nigeria has been assigned a 7.4 per cent weighting in J.P. Morgan’s new local-currency government bond index, nearly 11 years after the country was removed from the investment bank’s flagship emerging-market bond benchmark.
The country is among 26 frontier and emerging economies to be included in the J.P. Morgan Government Bond Index-Emerging Markets Edge (GBI-EM Edge), which the bank plans to launch by the end of September 2026.
The new index will track about $330 billion in local-currency government debt across the 26 markets, according to Reuters.
Nigeria’s 7.4 per cent allocation is close to the 8 per cent maximum weighting permitted for an individual country in the index.
According to data reported from J.P. Morgan’s index research, Nigerian government securities worth about $17.47 billion across 16 instruments are eligible for inclusion.
The Nigerian securities have an average yield to maturity of about 17.1 per cent and an average duration of 3.38 years.
Nigeria was first included in J.P. Morgan’s Government Bond Index-Emerging Markets in October 2012, after the country developed a more active domestic Federal Government of Nigeria bond market.
The market had a network of primary dealers, a two-way quotation system and a growing base of domestic and foreign investors.
However, J.P. Morgan placed Nigeria on its index watch list in January 2015 over concerns about conditions in the foreign-exchange market.
The concerns included inadequate FX liquidity, limited transparency in exchange-rate determination and the absence of a fully functional two-way foreign-exchange market.
Nigeria was subsequently removed from the GBI-EM in October 2015.
The Debt Management Office said at the time that the removal followed J.P. Morgan’s concerns about liquidity in the foreign-exchange market, which had been affected by falling oil revenues and measures introduced to stabilise the exchange rate.
The International Monetary Fund also noted that reduced liquidity in Nigeria’s interbank foreign-exchange market contributed to the decision by J.P. Morgan and Barclays to remove Nigerian bonds from their domestic-currency bond indexes.
What The New Index Covers
The GBI-EM Edge is designed to provide a benchmark for local-currency government bonds in frontier markets that are generally not represented in J.P. Morgan’s mainstream emerging-market local-currency bond indexes.
The index will contain approximately 425 instruments across 26 markets and 24 currencies.
Individual bonds must generally have an outstanding value of at least $250 million and more than 2.5 years remaining to maturity when they enter the index.
No individual country can account for more than 8 per cent of the benchmark.
Nigeria is therefore one of the larger constituents of the new index, alongside countries including Egypt, Vietnam, Morocco, Kazakhstan, Bangladesh, Pakistan and Sri Lanka.
Vietnam, Egypt, Morocco, Kazakhstan, Bangladesh and Pakistan each have the maximum 8 per cent weighting, while Sri Lanka has a 7.5 per cent allocation.
African markets collectively account for about 45 per cent of the new benchmark, while frontier Asian markets make up nearly one-third.
Higher-Yielding Frontier Market Debt
The new index comes as international investors show increased interest in higher-yielding local-currency debt in frontier economies.
J.P. Morgan estimates that the index has a nominal yield of about 10.4 per cent, roughly 440 basis points above its mainstream emerging-market local-currency index.
Back-testing by the bank showed that the new index would have generated annualised returns about 1.2 percentage points higher than the mainstream emerging-market local-currency index over the past nine years.
More than 60 per cent of the securities in the new index are expected to have yields above 10 per cent, according to earlier reporting by Reuters.
The higher yields reflect the greater risks associated with frontier markets, including currency volatility, lower market liquidity and macroeconomic uncertainty.
What The Inclusion Means For Nigeria
The inclusion puts Nigerian naira-denominated government bonds back into a major international benchmark used by global fixed-income investors.
Bond indexes are widely used by asset managers to measure portfolio performance and determine allocations across countries and markets.
Consequently, Nigeria’s inclusion could increase the visibility of its government securities among international investors that track or benchmark their portfolios against J.P. Morgan indexes.
It could also provide an additional channel for foreign portfolio investment into Nigeria’s domestic debt market.
However, inclusion in the index does not automatically guarantee a corresponding inflow of foreign capital.
Investors will still consider factors such as the stability of the naira, foreign-exchange liquidity, interest rates, inflation, fiscal conditions and their ability to repatriate investment proceeds.
Not A Full Return To The Main GBI-EM Index
Despite the significance of the announcement, Nigeria has not been reinstated in J.P. Morgan’s flagship GBI-EM Global Diversified index.
The GBI-EM Edge is a separate index created to track local-currency government debt in frontier markets that are not represented in the main emerging-market benchmark.
J.P. Morgan’s current index suite continues to distinguish between its GBI-EM Global Diversified and other emerging-market local-currency benchmarks.
The distinction is important because the size and investor base of the two indexes differ.
Nigeria’s 7.4 per cent weighting therefore represents its position within the new frontier-market benchmark rather than a 7.4 per cent allocation across the wider global emerging-market bond universe.