JPMorgan Launches $330bn Frontier Bond Index
JPMorgan is set to launch a new benchmark covering nearly $330 billion in frontier market debt by the end of September. The index targets high-yield opportunities in emerging economies.
JPMorgan will launch its new local-currency government bond index by the end of September. The benchmark covers nearly $330 billion in debt across 26 frontier economies. This move provides a standardized measure for a market segment that has grown significantly in recent years.
The new GBI-EM Edge index arrives almost two decades after the bank introduced its hard-currency frontier index. It includes bonds from countries such as Egypt, Vietnam, and Morocco. These markets have seen strong rallies following previous economic crises.
Composition of the new index
African countries account for nearly 45% of the index weightings. Frontier Asian markets make up almost a third of the total. Vietnam, Kazakhstan, Pakistan, and Bangladesh each carry the maximum 8% weighting cap.
The index includes only bonds with a value of $250 million or more. These bonds must have at least 2.5 years remaining until maturity. Zambia qualified for inclusion after increasing the size of its domestic bond issues.
Yield advantages for investors
The nominal yield of the new index stands at almost 10.4%. This is 440 basis points higher than the mainstream emerging market local currency index. Back-testing indicates returns would have been 1.2 percentage points higher annually over the past nine years.
Investors are seeking higher yields in these faster-growing economies. The World Bank notes that frontier regions hold a fifth of the global population. However, they currently account for only 3.1% of global capital flows.
Market impact and adoption
JPMorgan indexes are widely used by emerging market money managers. They serve as a key performance benchmark for institutional portfolios. The launch reflects a growing appetite for high-yielding debt instruments.
Local currency markets are expanding to reduce reliance on dollar debt. Angola has opened its $18.6 billion domestic bond market to wider participation. This trend supports the stability of developing economies during currency fluctuations.
