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bne October 2018 Companies & Markets I 13
Russia’s domestic debt under pressure as foreigners pull out ahead of possible “crushing” US sanctions
IntelliNews Pro
Russia’s domestic debt – the OFZ treasury bills – is under pressure as foreigners pull out of the market ahead of possible “crushing” sanctions that could be imposed on Russia this autumn.
The Russian finance ministry has called on investors not to panic and has even suggested that it will buy back the debt if the US carries through on threats to ban US investors from holding or trading Russian debt, writes finanz.ru.
The momentum of the sell off gathered pace in the last week. The price of Russian government bonds has fallen for four consecutive days, and the ruble exchange rate is approaching RUB70 to the dollar – a two-year low.
“Been seeing pretty continuous and steady selling pressure across Russian assets over the past week, as the locals seem to be freaking out around new sanctions risks emanating from these Congressional hearings late last week. The ruble was well over 70 to the greenback this morning, and local rates are seeing a lot of pain,” Tim Ash, senior sovereign strategist at BlueBay Asset Management said in a note.
“Sense it’s all this discussion around sanctioning sovereign debt, which is putting grist into the mill. The Russians seem to be making life worse for themselves by constantly talking
“The locals seem to be freaking out around new sanctions risks emanating from these Congressional hearings late last week”
about it – ministers/bankers all the time talking down the risks, which just accentuates markets concerns as they assume these dudes know something. My sense is they don't – as it’s not as though they have good lobbying lines into DC these days.”
The Russian Government Bond Index (RGBI) reached its lowest point since July 2016. The last time the market saw such a rapid drop in prices was in January 2016 when the oil price was $27 per barrel. In August the ruble fell 4.05% – a record since December 2014.
Long-term dated OFZs have depreciated by 12% since April, and the price of the nine-year bonds have risen from a coupon of 7% per annum in April, to between 9.1% and 9.2% now. The Ministry of Finance cancelled auctions because of the volatility on the market.
“Non-resident investors are disposing of their Russian government bonds and exchanging their rubles for other currencies”
Non-resident investors are disposing of their Russian government bonds and exchanging their rubles for other currencies, driving the ruble to a new lows. On September 7 the ruble dropped to RUB69.95 to the dollar – a record low since March 2016. The euro passed the RUB80 mark, and the dollar was only 12 kopeks shy of breaching the RUB81 mark.
The OFZs have been popular with western investment funds in the last few years as they offered an attractive mix of high yields backed by Russia’s large hard currency reserves. But now they are not waiting for new sanctions to be imposed and are dumping OFZs to be on the safe side.
The proportion of foreign investors has dropped to 26-27%, a low since December 2016, although it reached 34% in April, the Russian finance ministry reports. Over the last five months, non-residents have disposed of a record RUB600bn worth of bonds.
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