Page 19 - BNE_magazine_06_2020 Growers

bne June 2020 Companies & Markets I 19
bne:Funds
Russian OFZs are an Emerging Markets investor's safe haven
Ben Aris in Berlin
Russia has emerged as a safe haven for investors during the coronavirus (COVID-19) pandemic that has rocked capital markets around the world, according to a paper from the Institute of International Finance (IIF).
The Russian stock market sold off heavily at the end of February as the anticipation of the double whammy of an oil price shock and the impending pandemic became apparent. But while the leading dollar-denominated Russia Trading System (RTS) index remains down by a third from the start of the year, some investors are cautiously starting to cherry-pick among the blue chip names and position themselves for the inevitable recovery.
But it is Russia’s domestic bond market that is the most attractive asset and investment inflows by foreign investors were strong enough to entirely offset the devaluation pressure on the ruble from tumbling oil prices in April, according
to research from Nordea bank’s Moscow-based research department.
The Russian Ministry of Finance ruble-denominated OFZ treasury bills have been a magnet for international bond traders looking for safety-plus-returns in the last few years and
YTD change in 5Y CDS
Foreign investor inflows into Russia's OFZ domestic treasury bills in April were strong enough to completely offset the devaluation effect of tumbling oil prices
after a short sell-off in March they are back in fashion,
as central banks everywhere slash interest rates to zero again.
“Given the scale of the current crisis, [the] YTD increase in Russia's country risk premium looks very decent compared to other EMs,” Tatiana Evdokimova tweeted, the chief economist and EM coverage expert at Nordea, along with a chart that shows the small rise in credit default swaps for leading emerging markets.
With its entire external and public debt covered dollar-for- dollar with cash, coupled with the relatively high yields Russia’s fixed income instruments pay, foreign investors have been parking their cash in this workhorse-bond for the Russian Ministry of Finance.
As bne IntelliNews reported, the Russian finance ministry broke yet another record with the placement of OFZ bonds at this week’s auctions, selling RUB170bn ($2.4bn) worth of federal bonds in three issues against a total demand of over RUB230bn ($3.2bn) this week.
April did see a mild sell-off of about RUB300bn worth of bonds, reducing the share of OFZs held by foreigners to about
Source: Nordea Markets
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