When Greece became an emerging market

By Felix Salmon
April 8, 2010

In August 1999, JP Morgan released an expanded version of its EMBI+ emerging-market bond index. The new index, the EMBI Global, “was created in response to investor demand for a benchmark that includes a broader array of countries”, said the bank, which created a two-part test to see whether a country counted as an emerging market. First, it included all the countries that the World Bank considered to be “middle income” or lower. And then there was this:

Second, regardless of their World Bank- defined income level, countries that either have restructured their external or local debt during the past 10 years or currently have restructured external or local debt outstanding will also be considered for inclusion in the index.

The result was a list of something over 150 countries which were eligible for inclusion in the index; the next step was to see which specific bonds were eligible.

Of all the countries in the new EMBI Global, only one complained. Greece’s eurobonds were a (very small) part of the index, and the government was not at all happy about that: the government went to great lengths to try to persuade JP Morgan not to consider it an emerging market. But there it is, on page 5 of the PDF, with a “date of entry” of January 1997.

Today, Greece trades at spreads much wider than most of the highest-weighted countries in the EMBI Global, and is specifically targeting emerging-market investors with its new debt issue. I’m unclear on whether it’s still in the index*, but really that doesn’t matter: Greece is now to all intents and purposes an emerging market, as far as bond investors are concerned.

It’s always the ones who protest too much that you have to worry about.

*Update: It turns out that Greece is no longer in the EMBI Global. Just as they’re appealing to emerging-market investors, they’re going to have to be an out-of-benchmark bet.

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