Barclays will add approximately $16 billion of Nigerian debt to its emerging markets government bond index from April 1, the bank said on Thursday. Ten Nigerian bonds will be eligible for the Barclays Emerging Markets Local Currency Government Index and the country's projected weight would be about 0.9 percent, a spokeswoman said.
Africa's biggest crude oil producer will become the second sub-Saharan African country after South Africa to enter the index following reforms to improve access to its bond market. Nigeria, which has one of the continent's most developed debt markets, was included in the J.P. Morgan Government Bond Index - Emerging Markets (GBI-EM) from October 1 last year, increasing its appeal to mainstream foreign investors.
J.P. Morgan estimated that Nigeria would attract at least $1.5 billion of inflows as a result of the inclusion. Since October, yields have fallen by more than 200 basis points on some tenors, though they have climbed recently as foreign interest wanes. The Barclays index is less widely followed than J.P. Morgan's and the impact of the inclusion on yields may be more muted.
"We suspect only a handful of foreign funds investing in Nigeria track the Barclays bond index and that the impact on the long end will be limited from current levels," said Samir Gadio, emerging markets analyst at Standard Bank. "This is unlikely to generate the same yield compression as experienced with the GBI-EM inclusion." However, the inclusion could explain why some bonds have traded moderately stronger in recent days while the short end of the curve sold off, Gadio added.
The yield on the 7-year bond maturing in June 2019, which will be included in the index, fell 24 basis points to 10.96 percent on Thursday. That on the 5-year instrument maturing in 2017, also eligible, declined 41 basis points to 10.81 percent. The criteria for joining the Barclays index include market size and accessibility, Brian Upbin, head of benchmark index research at Barclays told Reuters in November, when the bank first announced Nigeria was to become a member.