September 22, 2026/Cordros Report
JP Morgan has introduced a new frontier markets local currency bond benchmark, the Government Bond Index Emerging Markets Edge (GBI-EM Edge), which brings Nigeria back into its local currency bond index universe after its removal from the flagship index in 2015. The index has approximately USD328.00 billion in total market value, of which USD17.47 billion comprises eligible Nigerian FGN bonds across 16 instruments. We expect the inclusion to provide a new channel for offshore demand from investors benchmarked to the new index, providing an additional source of demand amid elevated domestic instrument issuances.
The Rationale Behind Nigeria’s 2015 Index Removal
Nigeria’s relationship with JP Morgan’s index suite predates the launch of the GBI-EM Edge. The country first joined the original GBI-EM in October 2012, becoming the second African market after South Africa to be included in the index. With an initial index weight of 0.6% and approximately USD170.00 billion in assets benchmarked against the GBI EM. Foreign portfolio investment flows into FGN bonds subsequently increased from an average of USD19.60 million per month in the year preceding inclusion to USD102.90 million in the year following inclusion, before falling to USD29.70 million per month in the year following removal. Nigeria’s position in the index came under review in January 2015, when JP Morgan placed the country on ‘Index Watch’. The decision followed growing pressure on Nigeria’s foreign exchange market after the global decline in oil prices put pressure on the naira. Nigeria initially sought to support the currency through its foreign exchange reserves but subsequently introduced tighter market controls as the pressure persisted. The Central Bank of Nigeria later devalued the naira and maintained it at a fixed rate against the US dollar, resulting in a one way quote market. According to JP Morgan, these arrangements created challenges and uncertainty for foreign investors transacting in naira.
JP Morgan formalised the removal in September 2015, with Nigeria’s bonds phased out over two monthly rebalancing periods. The process was completed on 30 October 2015. JP Morgan’s assessment of Nigeria also remained cautious in subsequent years. In 2022, the bank separately removed Nigeria from its overweight emerging market sovereign debt recommendation, reflecting concerns about the country’s macroeconomic trajectory at the time.
The Criteria for GBI EM Edge Inclusion
Nigeria’s return to JP Morgan’s local currency bond index family comes through the newly introduced GBI EM Edge, rather than the flagship GBI EM Global Diversified (GBI EM GD) index from which it was removed in 2015. While the GBI EM GD focuses on established emerging markets, the GBI EM Edge extends coverage to frontier and second tier emerging markets that fall outside the GBI EM GD universe. Top of FormTwo layers of criteria determine inclusion.
Country level — The market must meet JP Morgan’s emerging market classification, which is determined using its Index Income Ceiling (IIC) and Index Purchasing Power Parity Ratio (IPR) criteria. It must also fall within the lower two-thirds of the global distribution by three-year average gross national income per capita. Additionally, Its local currency debt must also not already be represented in the flagship GBI-EM GD index. On currency, soft pegs, floating regimes and other peg like arrangements are considered eligible, while only hard pegs (i.e., no separate legal tender or a currency board) are considered ineligible.
Bond level — Eligible instruments must generally be fixed-rate or zero-coupon sovereign securities with more than 2.5 years to maturity at entry, a remaining maturity less than 15 years at the time of issuance and a minimum outstanding size equivalent to USD250.00 million.
Nigeria’s qualification reflects its alignment with these requirements. Its 2025 GNI per capita of USD1,250.00 under the World Bank Atlas method was only about 5.4% of JP Morgan’s USD23,848.00 Index Income Ceiling, clearing the income requirement without relying on the IPR criterion. Its three year average GNI per capita also places Nigeria within the required lower two thirds of the global distribution, with the country ranked 163rd out of 191 economies in 2024. Nigeria also qualifies because its local currency debt is not currently represented in the GBI EM GD, following its removal from the index in 2015. Finally, Nigeria’s floating exchange rate regime, following the 2023 unification of its FX windows, falls within JP Morgan’s eligible currency regimes. In total, USD17.47 billion of FGN bonds across 16 instruments qualify for inclusion, placing Nigeria among the benchmark’s more heavily represented markets alongside Egypt, Vietnam, Morocco, Kazakhstan, Bangladesh, Pakistan and Sri Lanka
Assessing the Potential Demand Impact
The Broad Market Impact: Generally, Nigeria’s inclusion in the GBI EM Edge to encourage greater international investor participation in FGN bonds and create an additional channel for foreign portfolio inflows. With Nigeria assigned a 7.4% weighting, the inclusion provides a formal benchmark allocation to Nigerian securities and could encourage both passive and active managers to establish or increase exposure to eligible FGN bonds. Over time, this should support broader foreign participation, improve secondary market liquidity and strengthen demand for FGN bonds, which could help moderate upward pressure on domestic yields, particularly during periods of heavy government issuance. However, we expect the impact to build gradually as investors incorporate the new benchmark into their portfolio strategies rather than materialise as a single, immediate inflow. The scale of the potential impact should also be viewed in the context of the capital benchmarked to the index. For context, the GBI EM Edge covers approximately USD328.00 billion of local currency government debt across 26 markets, while Nigeria has USD17.47 billion of eligible FGN bonds across 16 instruments. We believe actual demand will depend on the assets ultimately benchmarked to the GBI EM Edge, the proportion managed passively and the extent to which funds replicate the benchmark.
Our Quantitative Estimate: To estimate the potential scale of passive, index related demand for Nigerian domestic bonds, we utilised a top down approach. We started by examining the relationship between the AUM of funds tracking local currency and USD emerging market government bond benchmarks and the market value of their underlying indices. Our sample comprises four ETFs focused on emerging market local currency and USD debt: the SPDR Bloomberg Emerging Markets Local Bond ETF, VanEck JP Morgan EM Local Currency Bond ETF, iShares JP Morgan EM Local Government Bond UCITS ETF and iShares JP Morgan USD Emerging Markets Bond ETF. For each fund, we calculated the ratio of its AUM to the market value of its underlying benchmark and then took the average across the sample to derive an implied fund to index ratio. We apply this ratio to the GBI EM Edge’s underlying market value to estimate the potential pool of assets that could be linked to the new benchmark.
Our base case fund to index ratio of 1.0%, based on the average across our selected sample, implies an illustrative pool of approximately USD3.28 billion of benchmark linked assets, relative to the GBI EM Edge’s USD328.00 billion underlying market value. For our best case, we assume a higher 2.0% ratio, which increases the potential pool of benchmark linked assets to approximately USD6.56 billion. As a cross check, this range is broadly in line with the size of existing local currency emerging market bond ETFs, which have combined net assets of approximately USD7.89 billion.
We then estimate how much of these assets could be allocated to Nigeria by applying the country’s 7.4% index weighting. This implies potential demand of approximately USD243.00 million under our base case and USD485.00 million under our best case. If Nigeria’s weighting rises to the 8.0% country cap, potential demand would increase to approximately USD262.00 million and USD525.00 million, respectively. These estimates are illustrative scenarios based on assumed levels of assets linked to the index and should not be interpreted as forecasts of actual passive inflows. Overall, our analysis suggests that the GBI EM Edge could generate approximately USD243.00 million to USD525.00 million of potential benchmark linked demand for Nigerian domestic bonds, depending on the level of assets linked to the index and Nigeria’s eventual weighting.
Offshore Demand Begins to Materialise: We previously highlighted that stronger offshore demand, including potential pre-positioning by active managers, could help ease supply pressures in Nigeria’s fixed income market amid the FGN’s heavy issuance calendar. Recent market activity points to stronger foreign participation, with FPI flows into the fixed income market reaching approximately USD3.30 billion in August 2026, the highest monthly level recorded in more than two years. The bulk of these inflows has, however, been directed towards shorter duration instruments, particularly Treasury bills and OMO securities, reflecting the current preference for shorter tenor assets.
Against this backdrop, we expect the GBI EM Edge inclusion to provide an additional channel for offshore demand through FGN bonds as investors begin to position around the new benchmark. Over time, this could broaden the investor base for longer duration government securities and provide some support for the DMO’s issuance programme. The extent to which this translates into sustained demand for FGN bonds will depend on investor appetite, alongside continued FX stability, attractive real yields and confidence in Nigeria’s reform trajectory.
Yield Implications
We cited that fixed income yields would remain volatile in H2-26, as heavy government borrowing was likely to place pressure on market demand despite strong system liquidity. This balance between supply and demand remains central to the yield outlook. The recent 25bps Federal Reserve rate hike, although largely anticipated, adds another factor that could influence the direction of domestic monetary policy and keep rates elevated alongside the FGN’s heavy issuance programme. However, sustained demand from both local and offshore investors should help absorb the additional supply and temper upward pressure on yields. Overall, we retain our outlook for elevated but broadly range bound yields, with average FGN bond yields expected to remain around current levels of 16.5%, with scope for a marginal decline towards 16.0% by year end. Meanwhile, for Treasury bill instruments, we expect average NTB and OMO yields to settle at approximately 18.0% and 19.0%, respectively, by year end, with room for modest movements around these levels.