[BOOM] JP Morgan Finally Removes Half of Nigerian Bonds From Its Index

Beginning of the end

JP Morgan said on Tuesday that it will remove Half the Nigerian bonds listed on JP Morgan’s emerging markets bond index (GBI-EM) on Wednesday and while the balance will be removed in October .
According to its press release, as part of its rebalancing of the index 50 percent of bonds will be removed on Sept. 30, cutting Nigeria’s weight to 0.79 percent.
Consequently, the weight of Brazil and South Africa will increase by 0.80 percent and 0.20 percent respectively.
Following the announcement that it will yank Nigeria off the index, the estimated yield for Nigeria bonds on the index was quoted at 14.83 percent as of Sept. 25, marking the second highest yield after Brazil at 15.75 percent, the bank said.

What could happen afterwards

According to Reuters, analysts said they expected bond yields to trade flat after the removal on Wednesday because domestic buyers have stepped in since foreigners left the market.
Yields on government bond spiked this month on the news of the index removal with the 10-year benchmark debt rising to as much as 16.68 percent, prompting the bond market regulator to widen spreads to calm volatility.

Not bad after all

One European asset manager told Reuters in Lagos his fund was still interested in naira debt despite the index expulsion but would buy only if the yield rose to around 20 percent, to compensate for currency risk.
Nigeria’s central bank, trying to stop the naira’s slide, has pegged its rate against the dollar, turning inter-bank trading into a one-way quote market whose lack of transparency has upset investors.
JP Morgan said Nigeria would not be eligible for re-inclusion in the index for a minimum of 12 months.