Nigeria Returns To JP Morgan New Frontier Bond Index After 11 Years

J.P. Morgan has added Nigeria to its new local-currency government bond index, giving the country a 7.4 percent weighting.

The new benchmark, known as the Government Bond Index–Emerging Markets Edge (GBI-EM Edge), is expected to be launched by the end of September, according to Reuters.

The index will track around $330 billion worth of local-currency government bonds across 26 frontier markets.

Nigeria is expected to be one of the largest components, alongside countries such as Egypt, Vietnam, Morocco, Kazakhstan, Bangladesh, Pakistan and Sri Lanka.

J.P. Morgan has set an 8 percent limit on the weighting of any single country in the index.

Nigeria’s inclusion marks a major development after the country was removed from J.P. Morgan’s GBI-EM in 2015, about 11 years ago.

With a 7.4 percent allocation, Nigeria will have one of the biggest weights in the new index.

This could increase international investor interest in Nigerian government bonds and improve the visibility of the country’s domestic debt market.

J.P. Morgan has been developing the index for several years as investors continue to seek higher returns from government debt issued by frontier markets.

To qualify for the benchmark, bonds must have a minimum value equivalent to $250 million and at least 2.5 years remaining before maturity.

African countries are expected to make up nearly 45 percent of the index, while frontier markets in Asia will account for almost one-third.

The index is projected to have an average nominal yield of about 10.4 percent, which is roughly 440 basis points above J.P. Morgan’s broader emerging-market local-currency bond index.

Reuters also reported that back-testing showed the new benchmark could have delivered returns about 1.2 percentage points higher than the main emerging-market local-currency index since the end of 2017.

Bond indices are important to international fund managers because they help guide investment decisions and determine how funds are allocated across different countries.

Nigeria’s inclusion follows earlier efforts by the Federal Government to regain access to J.P. Morgan’s government bond benchmarks.

The government had said it was in discussions with the financial institution over the country’s return to its emerging-market bond index.

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