| Russian Eurobonds react nervously to terror A significant increase in the second half of August in the value of Russian Eurobonds gave way to a fall on the first day of September. Whether this becomes a trend depends on how effective the Russian government's response to the new hostage crisis is.
Quotes of the most liquid Russian Eurobonds maturing in 2030 yesterday at 16:00 Moscow time fell by 0.250 basis points, to 95.690% of par, with a yield of 7.316% per annum, Reuters reported. Compared to the previous close, the price of Eurobonds decreased by 0.22%. Meanwhile, on Tuesday the same securities rose in price by 0.27% after the announcement that the Russian Stabilization Fund grew by 16% in July. Its volume increased to 267.6 billion rubles, and the growth rate in July, thanks to the rapid rise in oil prices, outpaced the government's forecast. The increased volume of the stabilization fund, according to the market, increased Russia’s ability to manage its external debt, which was also recorded in Eurobonds. Yesterday the situation changed.
It is unlikely that the series of terrorist attacks that have occurred in recent days will directly affect the country’s ability to make payments on its external debt. However, investors preferred to take a break in anticipation of the consequences of the crisis associated with the current intensification of terrorist groups. Even during the August rise in quotations of Russian government obligations, The Financial Times wrote that the rise in oil prices to a record high level was not adequately reflected in the price of Eurobonds of Russia, one of the world's leading oil producing countries. Quotes of bonds of other countries, which, like Russia, belong to the category of emerging markets, have increased by an average of 3.44% since the beginning of this year. During this time, Russian securities added only 0.82% in price. And this despite the fact that in world markets there has been a tendency to reduce the share of cash in the portfolio of investment funds due to their investment in bonds of countries with developing economies.
In the second half of August, which was generally successful for Russian Eurobonds, there were still days when the quotes of these securities either decreased or did not grow. On one of these days, deputy Yuri Savelyev received a request from the Ministry of Internal Affairs, the FSB and the Prosecutor General's Office regarding the illegal acquisition of Gazprom shares by non-residents. On another, there was a skirmish at a government meeting over the failure of reforms in certain sectors. As for the government, its protracted restructuring and investor skepticism about its effectiveness were among the reasons for the fall in the Russian bond market in April. It was only able to recover to the same level by the end of August.
The economic stability achieved by Russia largely thanks to high oil prices, of course, creates a favorable background for Russian Eurobonds and increases the chances of creditors that the country will pay off its external debts. However, as the movement of the Eurobond market shows, economic success in itself does not convince investors. They need political stability, which seems to have already been achieved. However, while solving the problem of creating an “administrative vertical,” the authorities managed to subordinate and integrate only legal institutions into the system. Now this system turns out to be completely ineffective in the face of a challenge from the outside.
The Russian stock market practically did not react to the main events in the country. The RTS index showed “minus 0.17%”, and the MICEX index, which showed slight negative dynamics during trading, added 0.21% by the end of the day. Probably the fact is that Western markets are showing interest in the consumer, who, if something happens, will limit consumption and thereby cause damage to the company. For example, he won’t go on the subway or return his plane ticket. Russian professional participants pay attention primarily to the actions and statements of politicians. And nothing new from them. The anti-terrorist operation is simply continuing. Igor POLISCHUK |
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