By Christopher Whittall And Carolyn Cui
Russian government bonds will be dropped from two J.P. Morgan
Chase & Co. emerging-markets indexes, after the country was
downgraded to junk status by ratings firms Moody's Investors
Service and Standard & Poor's earlier this year.
In a note published on Friday, the bank said that under its
rules, Russia is no longer eligible for inclusion in the widely
followed investment-grade segment of its EMBI and GBI-EM suite of
indexes.
Russian securities will be removed from the EMBIG
investment-grade indexes on March 31 and the GBI-EM
investment-grade indexes on April 30.
Russia will remain in other J.P. Morgan indexes that don't
require a minimum credit rating.
Following the index change, securities such as exchange-traded
funds could be forced to eliminate exposure to Russian debt, which
could prompt a bout of selling. But many money managers have
reduced their exposure to Russian bonds as the country's economy
continues to deteriorate due to declining energy prices and falling
domestic demand.
Prices on Russian sovereign bonds already reflect its junk
rating, suggesting that many investors have already sold out of the
bonds. The yield on Russian 10-year bonds maturing in September
2023 fell to 6.087% on Friday from Thursday's 6.302%, according to
data provider Tradeweb. When bond yields fall, prices rise.
But Russian bond yields have risen high enough to lure to some
investors, especially when compared with the relatively low or
negative yields on government debt considered safe elsewhere. The
yield on the 10-year U.S. Treasury bond was 1.932% on Friday.
Though "Russia is a very risky place to invest right now, we
actually like it," said Jorge Mariscal, emerging-markets chief
investment officer at UBS Wealth Management, which oversees $1
trillion in invested assets. The firm holds more Russian
dollar-denominated government debt than is recommended by its
benchmark. "Most of the bad news has already been priced in," Mr.
Mariscal added.
Write to Christopher Whittall at christopher.whittall@wsj.com
and Carolyn Cui at carolyn.cui@wsj.com
Access Investor Kit for JPMorgan Chase & Co.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US46625H1005
Access Investor Kit for Moody's Corp.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US6153691059