Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 16 Jun 2022 by Alexander Kudrin

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As the oil price remains high (be it Brent or discounted Urals) the ruble continued to appreciate as the West’s pressure on Russia mounts and the economy is being gradually disconnected from the global financial system, dominated by the West. Russia’s demand for FX collapsed amid restricted exports to Russia from the group of “unfriendly countries”. A high level of inflation, albeit decelerating, combined with the ruble's nominal appreciation, means the latter’s even stronger appreciation in real terms. At some point, it may start causing problems for the economy. OFZ yields and RUONIA are sliding down further. The recent CBR decision to cut the key rate by 150 bps to 9.5% amid ongoing disinflation recorded in the several previous weeks, made investors bullish. Apart from that, the absence of new supply from the Finance Ministry helps to accelerate yield contraction on the OFZ market. In this environment, the Government changed slightly rhetoric and said it would consider the potential placement of Ruble bonds even in 2022. If so, this will be helpful for the market to maintain a proper balance between supply and demand as well as to improve liquidity on the secondary market. The sovereign Eurobonds market was almost halted after OFAC explained that US-based investors are not able to buy the existing securities on the secondary market. To remind, the Finance Ministry needs to pay coupons at the end of June, which execution is questionable and may lead to an “event of default”. Besides that, it is worth mentioning that international investors did not receive the interest payments on Russia 26 and 36 yet, which were transferred to Euroclear at the end of May. Significant...