Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Investors in Russian bonds relaxed about extended Putin rule

Economic IndicatorsJul 07, 2020 02:10AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
2/2 © Reuters. Russian President Vladimir Putin takes part in a a video conference call outside Moscow 2/2

By Andrey Ostroukh and Karin Strohecker

MOSCOW/LONDON (Reuters) - The prospect of President Vladimir Putin staying in the Kremlin until 2036 does not seem to be deterring buyers of Russia's high-yielding sovereign bonds as investors focus on economic fundamentals and political stability rather the risk of policy stagnation.

Investors in Russia are no strangers to shocks, having seen the country's markets roiled in recent years by sanctions and oil price collapses.

Yet very little of this has taken the shine off rouble-denominated government debt - so-called OFZs - thanks to the Russia's low indebtedness, prudent monetary and fiscal rules and the world's fourth largest FX reserves.

Now, constitutional changes that could extend the rule of Putin, who has been in power since 2000, as well as Moscow's plans to funds its post-pandemic recovery program have shone a fresh spotlight on the $135 billion OFZ market.

Few investors have expressed concern about Putin - who will turn 84 in 2036 - staying in power for so long, though this is not unusual for emerging markets where many prefer the stability of long-standing rulers to the ebb and flow of frequent policy change, as long as fiscal policy is sound.

"It's mixed news - on one hand you are always concerned when a leader is extending his time in office by hook or crook," said Kevin Daly, senior investment manager at Aberdeen Standard Investments in London, whose firm holds OFZs.

"On the other hand you have to give credit where credit is due in terms of the fiscal management under his (Putin) leadership, which has been prudent."

Foreign investors currently hold $43 billion worth of OFZs or around a third of sovereign rouble bonds.

Many enjoy the carry trade when they borrow dollars cheaply, convert them into roubles and invest in OFZs with yields of around 6% on a 10-year horizon (RU10YT=RR).

Russian interest rates are well above those measured by JPMorgan (NYSE:JPM)'s widely-tracked Government Bond Index Emerging Markets Global Diversified which hit an all-time low of 2.65%, according to analysts.

Graphic: Government bond yields of Russia, Brazil, Mexico and the United Statess https://fingfx.thomsonreuters.com/gfx/mkt/rlgpdladnpo/GOVT%20bonds.jpg

And in a world where interest rates have plunged ever lower as policymakers around the globe try to kickstart economies flattened by the coronavirus pandemic, this is an attractive play for many.

"Russian bonds are the only bonds I would buy now because they have high interest rates," veteran investor Jim Rogers (NYSE:ROG), who has invested in OFZs, told Reuters.

Russia needs its investors on side: Moscow wants to double its OFZ sales to $71 billion to steer through the recession. And bond buyers seem happy enough to comply.

A lengthy extension of Putin's rule did not seem to be a significant issue or the markets would have already repriced the risk, said Natasha Smirnova, sovereign portfolio manager for emerging markets fixed income at PineBridge Investments in London.

"There are no immediate alternatives to Putin and he is still popular even though support has been declining with an understandable desire for new fresh faces."

Russian OFZs have become a mainstay for many international emerging market investors since it became possible for foreigners to settle the asset through Euroclear in 2012.

Western sanctions against Moscow or Russian individuals over annexation of Crimea in 2014 only temporarily dented the share of rouble government bonds held by foreigners.

With the central bank recently switching to a more accommodative monetary policy stance - raising the prospect of more rate cuts - foreigners have bought into OFZ bonds before their prices go up, said a bond trader at a major western bank in Moscow.

The latest cut in Russia's key rate to an all-time low of 4.5% is not expected to see investors pull out of OFZs, central bank governor Elvira Nabiullina said last month, adding she was confident that all $71 billion set by the finance ministry for this year will be raised.

Graphic: Russia's OFZ landscape https://fingfx.thomsonreuters.com/gfx/mkt/bdwpkalxjpm/OFZ-rate-inflation.jpg

Over the past 10 years almost all domestic political developments were a "non-event" for investors who pay more attention to sanctions, said Igor Burlakov, chief business officer at Sova Capital in London.

And while sanctions are the single biggest risk to Russian assets, investors have learned to look beyond them.

"It is a permanent risk overhang, with occasional flare-ups, but the magnitude becomes smaller with each wave or yet another sanctions headline," said PineBridge's Smirnova.

($1 = 70.8977 roubles)

Investors in Russian bonds relaxed about extended Putin rule
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email