Share

Investors offload Russia as US sanctions spook bond market

Moscow - Russia’s rouble extended its slump and borrowing costs surged as bond investors offloaded holdings amid a wave of uncertainty created by the latest round of US sanctions.

The currency slumped to its lowest level since November, extending a slide this week to almost 8%. Yields on rouble debt jumped to the highest level in four months, while investors pulled money from an exchange-traded fund that tracks the bonds.

The harshest US penalties on Russia yet have left investors guessing about future targets, spurring them to unload long positions built up in rouble assets over recent months. Foreigners held about 34% of Russia’s local-currency sovereign bonds before the selloff, a record share, according to central bank data.

“The market was caught off guard, with many funds overweight Russian stocks, bonds and currencies,” said Morgan Harting, a portfolio manager at AllianceBernstein in New York. “It may be that keeping the rationale vague is part of the US strategy - leaving investors more uncertain about what comes next and more apprehensive about doing business in Russia.”

Adding to the concern is a bill proposed in Congress last week that would ban the purchase of Russian sovereign bonds. The US Treasury strongly recommended not pursuing such action in a report in February, saying it would be too damaging to US investors and global asset managers.

Russia’s Finance Ministry canceled its weekly bond auction for the first time since the oil price crash in 2015. Auctions will resume when the market stabilizes, the ministry said in a statement late on Tuesday, adding that it doesn’t expect the increased volatility to last for long.

The rouble was down 1% to 64.345 per dollar at 10:54 in Moscow, trimming an earlier loss of as much as 2.7%. The yield on 10-year rouble bonds was up 9 basis points at 7.68%. The cost of insuring Russian dollar debt against default jumped to the highest since August.

The iShares JP Morgan EM Local Government Bond ETF, which lists Russia as one of its biggest components, suffered its biggest outflow since October on Tuesday.

The latest US penalties, announced on Friday, are notably worse than earlier ones because they specifically bar any trading of securities of targeted companies rather than just blocking their access to new international fundraising.

“All Russian companies could potentially be at risk, and the impact could be quite substantial,” said Stephane Monier, chief investment officer at Bank Lombard Odier & Co in Geneva. “This represents a material risk for bondholders.”

* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER

We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.94
-0.2%
Rand - Pound
23.91
-0.1%
Rand - Euro
20.43
+0.2%
Rand - Aus dollar
12.34
+0.1%
Rand - Yen
0.13
-0.2%
Platinum
910.50
+1.5%
Palladium
1,011.50
+1.0%
Gold
2,221.35
+1.2%
Silver
24.87
+0.9%
Brent-ruolie
86.09
-0.2%
Top 40
68,346
+1.0%
All Share
74,536
+0.8%
Resource 10
57,251
+2.8%
Industrial 25
103,936
+0.6%
Financial 15
16,502
-0.1%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders