​Markets are too optimistic, but mainly due to technical reasons

RUSSIA ECONOMICS - In Brief 01 Apr 2022 by Alexander Kudrin

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The Russian markets were traded in an optimistic mood this week. The ruble appreciated from R/$96 to 80 as markets reacted positively to the decision of the Russian authorities to switch gas payments to rubles. Meanwhile, in reality, it may have only a marginal effect - if implemented. The main reason for such performance was a significant trade surplus and amended regulations that oblige exporters to convert 80% of their FX revenues into rubles. The equity market was also up, following a positive performance on the FX market.The OFZ curve shifted down by 150-200 bps, and the yield for 10-year paper is now close to 11.5%. This move was not justified by any fundamental reason. It has likely resulted from the low liquidity of the secondary market. On top of that, the absence of supply from both the Finance Ministry and international investors (who are still prohibited from unwinding their positions in local paper) also affected the market. The Russian government is still not ready to tap the primary market. We suppose that the pause may last for several months.The Finance Ministry continues to pay down interest on sovereign eurobonds but investors, who hold these paper in local custody, are not able to receive payments on securities with ISINs starting with XS. To somehow fix this problem, this week the government bought back from these investors in Russia-22s (with redemption next Monday) with settlement in rubles. The total amount of the deal was $1.45 bln. We expect all the payments by the government to be executed on time and in full at least until May 25, when the OFAC license which allows doing it expires.At the same time, the bulk of issuers of corporate eurobonds...