JPMorgan Is Removing Russian Debt From Its Key Bond Indices

Russian debt will be removed from the world’s most widely used emerging-market bond indices run by JPMorgan.
Both Russia and ally Belarus will be excluded from fixed-income benchmarks effective March 31, the bank said Monday.
Russian debt will be pulled from any of JPMorgan’s custom indices as well.

JPMorgan said Monday it will remove all of Russia’s sovereign and corporate debt from its emerging-market bond benchmarks, showing the extent to which Wall Street is distancing itself from Moscow over its war against Ukraine.

The bank said both Russia and ally Belarus will be removed from its fixed-income benchmarks, including the Emerging Market Bond Index (EMBI) and the Corporate Emerging Market Bond Index (CEMBI) from March 31.

Debt tied to both countries will also be removed from the bank’s ESG (environmental, social, and governance) related indices.

JPMorgan runs widely-followed indices, including the hard-currency EMBI, and a corporate debt equivalent called CEMBI. It also runs one tracking local debt in emerging currencies, called GBI-EM, and another governed by ESG factors called the JESG index. These instruments represent billions of dollars in fixed-income assets.

JPMorgan said Russian corporates too will be removed from its index that tracks the performance of dollar-denominated bonds issued by emerging market entities.

On top of the measures to restrict access in emerging-market indexes, Russian debt will be removed from any custom indices.

JPMorgan’s flagship bond indices will show that they exclude Russia, as seen in the table below.

JPMorgan had polled investors over the exclusion of Russian debt from its benchmarks last week, Reuters reported. Those surveyed were asked to choose between March or the end of April as their preferred timing for exclusion.

Assets worth over $840 billion are tied to the bank’s bond indices, and Russia’s weighting was at or under 1.03% within them.

The unprecedented response to Russia’s attack on Ukraine is rapidly being felt across the world. Russia’s economy itself has found itself in a free-fall, with its major stocks collapsing by more than 90% before trading was halted while the ruble reached its lowest level during more than two decades of Vladimir Putin’s leadership.

A combination of outrage and self-sanctioning have seen disrupted flows to oil and many other commodities from Russia, with buyers increasingly viewing Russian assets as “uninvestable,” analysts say.

The major credit ratings agencies have cut Russia’s sovereign debt to junk, with Moody’s leaving it just one notch above default level.

“Russian 5-year sovereign credit default swaps are now trading at 26% per annum, a level implying a very high probability of default,” Alastair George, chief investment strategist at Edison Group, said in a note.

“We believe Russia’s banking system will be under extreme pressure as it is effectively locked out of funding markets and will likely have to turn to emergency facilities provided by the central bank,” he added.

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