Citigroup poised to cut Greek debt from WGBI index

Citigroup poised to cut Greek debt from WGBI index

New York: Citigroup said on Tuesday it is preparing to remove Greek government debt from its World Government Bond Index, a key benchmark for sovereign credit, after Moody’s Investors Service cut its rating to junk status.

“Greece no longer meets the minimum credit criteria of BBB-/Baa3 by either S&P or Moody’s for the World Government Bond Index (WGBI)," Citigroup said.

Moody’s earlier on Tuesday cut Greek government bond ratings four notches to Ba1 from A3, the second ratings agency to regard the Hellenic Republic’s credit as non-investment grade.

In late April, Standard & Poor’s cut its rating on Greece to BB-plus, an equivalent junk status.

“If the credit ratings remain below investment-grade on June 24, 2010, the fixing date for the July 2010 Profile, Greece will be removed from the WGBI at the end of June," a memo, dated 14 June, said.

Greece stands at the center of Europe’s sovereign credit crisis which roiled global financial markets and pushed the European Union and the International Monetary Fund to cobble together a massive bailout plan.

The aid mechanism for Greece is worth 110 billion euros ($132.4 billion) and a safety net for other euro zone countries is worth 500 billion euros.

Greece has a debt load forecast to reach 149 percent of gross domestic product by 2013. It is expected to see its economy slump by 4% this year after a 2% drop in 2009, as tax increases and cuts in wages and pensions take a toll.

Citigroup said there are currently 23 Greek government bonds in the “June 2010 WGBI profile" with a total market value of $213.6 billion. These bonds represent 1.34 percent of the overall WGBI, the memo said.

The bonds would also be removed from the EMU Government Bond Index (EGBI) and the World Broad Investment-Grade (WorldBIG) Bond Index at the end of June, Citigroup said.

“We will continue to track the Greek Government Bond Index as one of the WGBI - Additional Market Indexes starting with the July 2010 profile," the memo said.

The WGBI index is a major benchmark used by investment funds. Once removed, a country can become a candidate for re-entry if it meets requisite criteria. This process however takes a minimum of six months.

Separately, JPMorgan Chase said in a research note dated June 15 that Greek sovereign debt, as a result of the Moody’s downgrade, were now eligible for its Emerging Markets Bond Index Plus.

At present only the Greek 4.625% 2013 bonds are eligible for the EMBI+, however they “don’t meet the necessary liquidity criteria for inclusion," JP Morgan said. The bond was last bid at a price of 82.167, yielding 12.002%, according to Thomson Reuters data.

“Greece is not eligible for the EMBIG/Diversified series due to its high income status," the firm said.