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Barclays to cut Nigeria from emerging markets local Bond Index February 2016

By on November 11, 2015

Barclays monday announced that it would remove Nigeria’s sovereign debt from its emerging markets local currency government bond benchmark from February 1, 2016.

The announcement came a few weeks after United States investment bank, JP Morgan & Chase, removed the country from its Government Bond Index for Emerging Markets (GBI-EM).

Barclays was quoted by Reuters to have explained: “Nigeria will be removed from the flagship Emerging Markets Local Currency Government Index as of February 1, 2016,”  adding that the debt would continue to be eligible for its broader Emerging Markets Local Currency Government Universal Index.

The index provider had said it would drop Nigeria from its index and had cited same lack of liquidity and currency restrictions that JP Morgan gave to delist Nigerian bond from its index. In fact, Barclays had last month disclosed that it listed Nigeria’s eligibility for inclusion in the Emerging Market Local Currency Government Index among the primary topics to be considered in its yearly review process this month.

The international bank had in March 2013 admitted 13 FGN Bonds with a value of $13.9 billion on the index. Nigeria and Romania were the two countries whose governments’ local currency bonds were added to the Index same month.

Africa’s largest economy has taken a hammering from the steep drop in oil prices since mid-2014. Barclays also said that Russia and Argentina would become eligible for its Emerging Markets Government Inflation-LinkedI  Bond (EMGILB) Index as of February 1, 2016.
When contacted on the development last night, the Director, Corporate Communications of the Central Bank of Nigeria (CBN), Mallam Ibrahim Mu’azu, told THISDAY that the move by Barclays was unfortunate, saying there was no reason for such a decision.

According to him, all the reasons that JP Morgan gave for the delisting of the country earlier had since been resolved, adding that Barclays ought not to have taken such decision.

“There is no reason for their action other than they want to follow what JP Morgan did. If you look at the issues why JP Morgan took its decision, they have all been resolved. The federal government now has a cabinet in place and the developments in the last three months show that the country is on the right track,” he added.

He also noted that recent positive ratings assigned to the country by Fitch and S&P ratings were all indications that the nation was on the right path.

The federal government had in response to JP Morgan stated that Nigeria and the interest of Nigerians were paramount, and that they would continue to take economic decisions that would impact positively on the lives of all citizens.

“The market for FGN Bonds remains strong and active due primarily to the strength and diversity of the domestic investor base,” it had maintained.

Afrinvest West Africa Limited at the weekend disclosed that the Nigerian bond market had been very liquid in the past few weeks, which has made investors to remain bullish in the fixed income securities market.

The strong liquidity in the market was largely influenced by the decision of the CBN to suspend its regular mop-up of liquidity from the system, mostly through its open market operations (OMO) instrument in the past few weeks. This is evident in the Nigerian Interbank Offered Rates (NIBOR), especially the overnight tenor, which has fallen significantly. The yield on a 90-day naira-denominated treasury bill has fallen from 14.9 per cent in August to 9.3 per cent recently. Having been essentially flat for at least five years, the naira yield curve now has a positive slope.

These, together with  a six per cent reduction in commercial banks’ cash reserve requirement from 31 per cent to 25 per cent by the monetary policy committee in September, according to analysts, have more than offset the reduction in liquidity resulting from the implementation of the Treasury Single Account.

 

[ThisDay]