U.S. investment bank JPMorgan has reclassified Qatar and Kuwait as developed markets and will soon begin the phased removal of both countries from its Emerging Market Bond Index (EMBI), Bloomberg reports. The bank is also considering the potential removal of the UAE, should the country’s cost-of-living metric again exceed the threshold set for emerging markets.

The process of removing Qatar and Kuwait from the index will begin on March 31 and will be completed over six months, according to JPMorgan’s Global Index Research. New bond issuances from these countries, including two major dollar-denominated bonds issued by Qatar on Thursday, February 20, will no longer be included in index calculations.

Bloomberg notes that the removal of these two investment-grade countries could increase the overall risk profile of emerging-market sovereign bonds. JPMorgan estimates the spread to U.S. Treasury yields could widen by approximately 11 basis points. Qatar currently accounts for 3.2% of the EMBI, Kuwait 0.6%, and the UAE 4.1%. Their exclusion may lead to capital redistribution among markets and potentially reduce trading opportunities.

“We’ve expected this move for some time,” said Anders Faergemann, co-head of Emerging Markets Fixed Income at PineBridge Investments. He added that removing countries from the emerging-market index narrows the pool of investors, although interest from developed-market funds in their bonds is likely to persist. Qatari dollar-denominated bonds have returned 0.8% year-to-date, with a spread against U.S. Treasuries among the lowest in the emerging-market segment—just 67 basis points compared to an average of 317.

Despite strong credit metrics, Qatar expects a budget deficit of 13.2 billion riyals ($3.62 billion) in 2024, partially financed by external borrowing, Bloomberg reported. In April, Qatar faces a $2 billion bond maturity. Kuwait, which has not issued international debt since 2017 due to a lack of state debt legislation, plans to raise up to $65 billion this year.