JPMorgan Chase & Co. will remove Russian bonds from all broadly tracked indexes. The decision follows in the footsteps of MSCI Inc., Bloomberg LP and other benchmark providers already pulling the nation's assets off the main gauge.
Citing Bloomberg (8/3), Russian debt will be removed from the JPMorgan Emerging Market Bond Index (EMBI), Government Bond Index-Emerging Markets (GBI-EM), Corporate Emerging Markets Bond Index and all other bank benchmarks, effective March 31.
Russia's ties to global markets are being cut off, with its foreign exchange reserves frozen, while Moscow's capital controls and a ban on foreigners selling securities locally have closed the door on international investors.
State bonds have been cut to junk status and companies including Exxon Mobil Corp are pulling out of the country.
JPMorgan's move is the latest in a series of similar announcements from index providers after the country invaded Ukraine and liquidity for many securities evaporated.
Last week, Bloomberg said that it would remove Russia's debt from its fixed-income index, with the changes due by the end of March.
Bloomberg LP, the parent of Bloomberg News, is also the parent company of Bloomberg Index Services Limited, which manages the indexes.
There is uncertainty about whether Russian debt owners will get their money back.
While the government is paying its bond coupons for now, it's unclear how or when investors will receive their cash, and the country faces its first debt default risk since 1998.
"It will take a long time to reverse this, which means that financial isolation for Russia is likely to last for a long period of time, reversing much of the progress Russia has made in recent years," said Mitul Kotecha, analyst at TD Securities in Singapore.
JPMorgan's decision is perhaps one of the most impactful for Russia's debt. An estimated US$ 415 billion in assets follows the EMBI index and US$ 245 billion follows the GBI-EM measure, both of which are industry standards for emerging market investors.
Russia's debt accounted for 0.6876% of the EMBI Global Diversification gauge and 1.8360% of the GBI-EM Global Diversification index as of March 2.
Earlier this month, JPMorgan said it would consider revising its bond index as sanctions build up against Russia, a move that is likely to prompt investment funds that track the benchmark to stop buying the underlying securities.
This is not the first time JPMorgan has removed a country's debt from its gauges. Venezuela was removed from the bank's benchmark in 2019 following sanctions following a disputed presidential election.
Nigeria was withdrawn in 2015 from its local currency debt gauge after restrictions on foreign exchange transactions stoked concerns about liquidity shortages.
