Press Releases Salomon Smith Barney Introduces the Global Emerging Market Sovereign (GEMS) Suite of Indices

The GEMS suite of indices covers US dollar-denominated external debt issued by sovereigns whose foreign debt is rated at or below BBB+/Baa1 by S&P/Moodys, together with Brady obligations of these issuers. In order to ensure relevance of the securities and to maintain a high quality of information, individual issues must have at least US$500 million outstanding to be eligible. The suite consists of four major indices, designed to appeal to investors with different objectives and guidelines:

• The core GEMS Index is market-capitalisation-weighted according to the total amount of eligible bonds from each issuer and excludes sovereigns in default.
• The GEMS-Extended Index (GEMS-E) extends the core GEMS coverage to include bonds of sovereigns in default, thereby capturing the performance of defaulted debt during the restructuring process.
• The GEMS-Capped Index (GEMS-C) excludes defaulted sovereigns and limits the exposure to any one issuer by adopting a simple algorithm to cap at US$15 billion the total par amount of any single issuer's debt in the index.
• The GEMS-Capped Extended Index (GEMS-CE) combines the inclusion of defaulted sovereigns with the US$15 billion cap on individual markets.

All four indices, together with their various sub-indices, adopt a new methodology that significantly improves the analysis of sectoral spreads and performance. Emerging Market bonds are often characterised by wide and volatile credit spreads; most existing indices adopt a simple market-weighting algorithm that incorrectly represents average spreads and intra-period spread changes. The approach used in the GEMS suite provides a still simple but significantly more accurate representation of spread movements, facilitating better performance forecasting and return attribution.

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