Russian sovereign debt: The market becomes local

RUSSIA ECONOMICS - Report 01 Jul 2022 by Evgeny Gavrilenkov and Alexander Kudrin

International holders didn’t receive interest payments on two issues of Sovereign Eurobonds by the expiration of the grace period despite all the efforts of the Finance Ministry, and the event of default was finally observed. However, Russian authorities are trying to deliver payments to investors, and for this purpose elaborated a new scheme of payments on this paper in rubles, which is being tested by the market. On the back of continuous problems with the servicing of external debt for many private borrowers, we expect a significant share of the Russian Eurobond market to migrate into the local settlement system. OFZs performed well during the past several months; given the potential for further cuts of the key rate the rally may continue. At the same time, the Finance Ministry may return to the primary market in the coming months despite the previously announced decision not to issue bonds until the year-end.

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