Half the Nigeria’s bonds listed on the JPMorgan Government Bond Index for Emerging Markets (GBI-EM) will be removed this Wednesday and the rest next month, the United States bank said on Tuesday.
The decision, which means investment funds tracking the index will sell Nigerian bonds, according to Reuters, would add upward pressure to borrowing costs for Africa’s largest economy already reeling from a sharp drop in oil revenues.
JPMorgan said this month it would drop FGN Bonds from its index, citing a lack of liquidity and currency restrictions.
The bank said in a note 50 per cent of bonds would be removed as of September 30, part of its month-end index rebalancing, cutting Nigeria’s weight to 0.79 per cent. The weight of Brazil and South Africa will increase by 0.80 per cent and 0.20 per cent respectively.
Central Bank of Nigeria (CBN) Governor, Mr. Godwin Emefiele, while addressing journalists at the end of the Monetary Policy Committee (MPC) meeting last week, said the central bank was “very much optimistic that in due course, by the time we are able to achieve some moderation in demand for the importation of these (items excluded from funding in the official forex market), it should be possible for us to return to the index.
“We will continue to make sure that those decisions we took will continue to impact positively on the lives of our people. And we are committed to it. We will try as much as possible to play our part as the monetary authority to do our best to continue to engender growth and create employment for our people so that we can continue to see economic growth and development in Nigeria.”
In 2012, Nigeria became the second African country after South Africa to be listed in the index with a weight of 1.8 per cent.
The estimated yield for Nigeria bonds on the index was quoted at 14.83 per cent as at September 25, marking the second highest yield after Brazil at 15.75 per cent, the bank said.
Analysts said they expected bond yields to trade flat after the delisting today because domestic buyers had stepped in since foreigners left the market.
Yields on government bonds spiked this month on the news of the delisting with the 10-year benchmark debt rising to as much as 16.68 per cent, prompting the bond market regulator to widen spreads to calm volatility.
One European asset manager told Reuters in Lagos that his fund was still interested in naira debt despite the index expulsion but would buy only if the yield rose to around 20 per cent, to compensate for currency risk.
JPMorgan said Nigeria would not be eligible for re-inclusion in the index for a minimum of 12 months.