Nigeria returns to JP Morgan’s new frontier bond index

J.P. Morgan has included Nigeria in its new emerging markets bond index, giving the country a weighting of 7.4 percent. The Government Bond Index Emerging Markets Edge is expected to launch by the end of September. It will track approximately $330 billion in local currency government debt across 26 frontier markets.

Nigeria will be one of the largest countries represented in the index, alongside Egypt, Vietnam, Morocco, Kazakhstan, Bangladesh, Pakistan and Sri Lanka. J.P. Morgan has limited the weighting of any individual country to 8 percent. The inclusion could increase the visibility of Nigerian government securities among international fixed income investors. It comes nearly 11 years after Nigeria was removed from J.P. Morgan’s main emerging markets government bond index in 2015.

To qualify for the new index, government bonds are expected to have a minimum value equivalent to $250 million and at least two and a half years remaining before maturity. African countries are expected to represent almost 45 percent of the index, while frontier Asian markets will account for nearly one third.

The benchmark is expected to offer an average nominal yield of approximately 10.4 percent. This is around 440 basis points higher than J.P. Morgan’s main emerging markets local currency index. Historical testing indicated that the new index would have produced returns about 1.2 percentage points higher than the mainstream index since the end of 2017.

Bond indices are closely followed by global fund managers because they are often used to guide investment decisions and determine how funds are allocated across different markets. Nigeria’s inclusion follows discussions between the federal government and J.P. Morgan about returning the country to an international government bond benchmark.