The moves have seen the sovereign’s curve fall nearly a point in early trading this morning.
In 2008, the sovereign suffered a 1-2 notch downgrade and lost more than one-third of its FX reserves. “Importantly, at present the Russian economy is in a much weaker spot - back in H1 2008 it had been flying high with +6% real GDP growth and soaring oil/commodity prices. Now the economy is struggling to grow much above 1% even with oil prices at over USD100 per barrel for Urals,” said Ash.
His comments came as Fitch followed Standard & Poor’s in revising its outlook on Russia’s debt to negative. Both agencies maintain their BBB ratings.
Meanwhile, the Obama administration extended its sanctions to Putin’s inner circle, including the chairman of Russian Railways, and threatened to go further if Russia continues to put pressure on Ukraine.
“A general message from the US yesterday was that we are serious about this, and will be acting to tighten the sanctions regime around Russia over the coming days if we do not see de-escalation from Russia,” said Ash.
Russia’s deputy foreign minister, in turn, said they are preparing for reciprocal sanctions on the West. “So if Bank Rossiya was sanctioned for being the Kremlin’s bank, who might be deemed the White House bank?” asks Ash.
Away from the geopolitics, outflows from emerging market bond funds turned negative in the week through March 19, but the figure paled in comparison to equity fund outflows, Barclays said in a research note, citing EPFR data.
EM bond funds recorded outflows of US$830m, a switch from a US$560m inflow the previous week.
EM dedicated equity funds, meanwhile, saw US$4.09bn in outflows in the latest week compared with a US$2.45bn outflow the week before.
Yet despite these numbers, the evidence from actual deals and secondary market moves shows that EM is proving more than resilient. After Hungary’s blow-out dual-tranche offering on Tuesday, it was Mexican conglomerate Alfa’s turn on Thursday.
Concerns over more aggressive rate moves from the US Federal Reserve did little to discourage investors from participating in a USD1bn 10s/30s trade from the holding company, rated Baa3/BBB-/BBB-, which saw orders peak at around USD7bn, underscoring strong appetite for credits in the right postcode.
“They walked pricing in all the way,” said a trader. “I suspect there will be some copycat supply on the back of Alfa.”
The holding company came well inside similarly rated or Double B operating companies, erasing the typical spread premium required between such credits.
