Nigeria Gets A Bond Index Demotion

Nigeria is Africa's largest economy, but liquidity issues are hampering the country's local currency-denominated debt, prompting JPMorgan Chase & Co. to remove the country from its local-currency emerging market bond indexes. More than $200 billion tracks those benchmarks.

“Nigeria will not be eligible for re-entry for at least 12 months from the date of exclusion, JPMorgan said. The country has a 1.5 percent weighting in the biggest GBI-EM index, which is tracked by $183.8 billion of funds, according to the bank,” reports Bloomberg News. 

The news, originally reported Tuesday, did not get pressure the Global X MSCI Nigeria ETF NGE. NGE, the lone Nigeria ETF, participated in a rally that lifted stocks around the world, soaring nearly 3.8 percent. Still, the lone Nigeria ETF is off 5.7 percent year-to-date. NGE is one of just three country-specific ETFs tracking a nation that is a member of the Organization of Petroleum Exporting Countries (OPEC).

Nigerian equities bear the frontier market designation and the country is one of the largest weights in the iShares MSCI Frontier 100 ETF FM. 

JPMorgan's decision to boot Nigeria from its local-currency bond indexes, a move that will be complete next month, does not have widespread ETF impact. The iShares J.P. Morgan USD Emerging Markets Bond ETF EMB, the largest emerging markets bond ETF, tracks a JPMorgan index, but the bonds held by the fund are dollar-denominated.

However, the Market Vectors Emerging Markets Local Currency Bond ETF EMLC does track the J.P. Morgan GBI-EMG Core Index (GBIEMCOR) and currently features a 3.1 percent allocation to naira-denominated debt, according to issuer data. 

EMLC has a 30-day SEC yield of 6.65 percent and is home to $1.2 billion in assets under management.

Neither the actively managed WisdomTree Emerging Markets Local Debt Fund ELD nor the iShares Emerging Markets Local Currency Bond ETF LEMB hold naira-denominated bonds.

The yield on Nigerian bonds reflects the risk associated with that debt. For example, the yield on Nigerian 10-year bonds jumped to 16.15 percent on Sept. 7. That is more than quadruple the trailing 12-month dividend yield of 3.7 percent found on NGE.