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Russia & CIS

Too soon to tell if Russo-Ukrainian tensions will affect Russian bonds

Tensions between Russia and Ukraine are on the rise again, with the markets reacting negatively to an escalation before the weekend, though tempers seem to be settling. This has again been reflected in the markets, with the Russian rouble outperforming other EM currencies early this week. At this stage tensions are also unlikely to impact the Russian bond market, and any effect would likely be in a tail risk scenario.

Aug 15, 2016 // 5:18PM

Relations between Russia and Ukraine appear to be deteriorating following alleged Ukrainian incursions into Crimea last week.

The rise in tensions has had a negative impact on Ukrainian sovereign US dollar-denominated bonds maturing in 2019, which rose 0.37% on August 11 to 7.82% according to the FT.

Russian sovereign bonds were equally affected. On August 12, the yield on 10-year rouble-denominated bonds rose 6bp to 8.36% and Russian credit default swaps increased by 11bp to 232bp according to Bloomberg.

Furthermore, figures from Bloomberg show that the rouble fell 1% on the same day to 64.9775 to the US dollar.

However, it remains to be seen how the situation will play out. “At this stage, the ‘renewed tensions’ story looks far-fetched,” said Yury Tulinov, head of research at Rosbank.

He added that as a result there would not be any long lasting implications for the Russian bond markets.

If there were to be any impact on the Russian fixed-income space, it would likely be in ‘tail risk’ scenarios according to Tulinov.

In addition, despite earlier concerns, tensions appear to have eased over the weekend, which has been reflected in Russia’s currency performance. According to Bloomberg, the Russian rouble advanced the most out of all EMs today, rising 0.6% to 64.3747. 5-year credit default swaps also fell 7bp to 224bp. The yield on 10-year Russian local-currency bonds also fell 2bp to 8.34%. 

Ukrainian bonds on the other hand continued to fall, data from Bloomberg shows, with 2026 notes seeing their yields increase by 1bp to 8.27%.

Russia & CIS Macro Currencies

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