JP Morgan Headquarters

By Obinna Chima

Nigeria Monday joined the JP Morgan Government Bond Index-Emerging Markets (GBI-EM) with the listing of FGN’s bond, becoming the second African country after South Africa to be included in the widely followed index.

The JP Morgan GBI-EM indices are comprehensive emerging market debt benchmarks that track local currency bonds issued by governments of emerging market.

The index was launched in June 2005 and is the first comprehensive global local emerging markets index.
Reuters quoted JP Morgan as saying that the inclusion of FGN Bonds could translate into at least $1.5 billion of inflow to Nigeria’s bond market.

It will also raise the profile of Nigeria’s debt market, which is expected to lead to greater foreign participation, given that Nigerian yields offer a significant premium to established sovereign lenders.

On the inclusion of FGN bonds on the index, Emerging Markets Strategist, Standard Bank, Samir Gadio said: “Nigeria is now seen as a market that can’t be ignored internationally and one of the frontier markets where you need to have a position.”

The inclusion of Nigeria in the GBI-EM comes as South Africa joins Citigroup’s World Government Bond Index, although funds tracking the latter are estimated at $2 trillion compared with $180 billion for the JP Morgan index.

At some $25 billion, Nigeria’s sovereign debt market is still dwarfed by South Africa’s $100 billion market. Secondary market turnover is also around a fifth of its more developed peer south of the Sahara.

But analysts hopeful that the GBI-EM inclusion would help bolster the case for market reforms such as the introduction of securities lending and a deeper repo market.
Treasurer at Citibank Nigeria, Akin Dawodu said: “We think this will help focus minds and get that moving faster so that the legacy can be a deeper, more diverse market.”
Market analysts further added that Nigeria’s addition to the GBI-EM marks it out as one of the more accessible markets on the continent for foreign investors.

“Nigeria has done a lot of work in recent years in developing its bond market to improve liquidity,” said sub-Saharan Africa strategist at Citi, Leon Myburgh.

Myburgh added: “In most African markets, foreign participation is largely limited to the treasury bill market, but Nigeria has been able to cross the threshold and seen foreign investors enter its bond market as well.”

On this, JP Morgan Strategist for Sub-Saharan Africa, Giulia Pellegrini said: “Now I think we’ll see the people that are less familiar with this market coming through - the benchmark investors, the big real money accounts that may have taken some time to internalise this decision to include Nigeria in the index.”