The Russian economy (catch all)

[Firn]

Putin Pushes Untradeable Notes as Bond Sales Fail: Russia Credit

Axing Auctions

Russia has scrapped seven bond auctions this year, citing “unfavorable” market conditions. Investors fled emerging-market assets in January as the Federal Reserve reduced its bond-buying program. They continued their exodus from Russian markets as the crisis in Ukraine deepened, leading Standard & Poor’s and Fitch Ratings to cut the country’s credit outlook to negative this month.

Outflows were probably near $70 billion in the first three months, Deputy Economy Minister Andrey Klepach told reporters on March 24. That compares with $63 billion in all of 2013.

The government may refrain from selling $7 billion in Eurobonds and pare its 825 billion-ruble domestic-bond target, Finance Minister Anton Siluanov said March 21. The ministry has borrowed 37 billion rubles since the start of the year, data on its website show.

Of course it is not the first time, they did a similar thing to finance themselves less the two years ago. Russia is not shut out of the international financial market but it has to pay more to get access to it.

The longer the conflict goes the more damage it will inflict on the Russian economy, especially long-term. In the short run the balance sheet and revenue streams looks strong enough to weather some storms with little damage.


On the other side is no surprise that the IMF deal pushed down yields. Still I would not have expected a fall of 20%, which is quite amazing. Big news in not very liquid and relative small market, make it of course easier to get such wild swings compared to treasuries. As I said earlier if there is enough political willpower in the West, it easily has the financial firepower to make a big splash.

The IMF deal “unlocked the highly desired support of the EU and the U.S. to develop the Ukrainian economy and prevent default,” Alexander Valchyshen and Taras Kotovych, analysts at Investment Capital Ukraine in Kiev, said in an e-mailed note today. “If the Ukrainian parliament adopts other drafts of the law to improve the Ukrainian economic situation, yields should continue to decline further.”

The government signed a political pact with the European Union on March 21, after the ouster of President Viktor Yanukovych prompted Russia to stop lending to its former Soviet vassal state and annex the Crimea region.

The weakness of the Hryvnia is mostly a combination of a country in turmoil and the overvaluation achieved by the monetary interventions in the last year which was money thrown out to get lower inflation and maybe better personal deals abroad...