The Countering America’s Adversaries Through Sanctions Act, which was adopted in August, provides for a possible ban on investments in Russian government debt. It is not yet clear how serious new sanctions will turn: whether the ban will only affect new issues of federal loan bonds (OFZ) or the entire sovereign debt. "In the federal loan bonds market, the weighted average of U.S. investors' share is about 7.4 percent," said the Analytical Center expert Daniil Nametkin in an interview with the Rossiyskaya Gazeta.
Increased Volatility in the Foreign Exchange Market is the Main Risk to make U.S. Investors Leave the Russian Market
According to the expert, the OFZ 26217 bonds maturing in 2021 enjoy the greatest demand among U.S. investors — their share is 21 percent with 290 billion rubles worth bonds issue. Usually U.S. investors invest in OFZ with a constant coupon income (about 85 percent) and maturing in less than 5 years.
The expert believes that, when all OFZ bonds owned by U.S. residents are sold, the short-term increase in the indicator of the Russian government bonds yield will not exceed 0.3–0.4 percentage points, provided oil prices remain at the current level.
"Having sold out securities for almost half a trillion rubles, Americans will buy hard currency. Therefore, as for financial stability, the main risk for U.S. investors that can make them leave the Russian market is the growth of volatility in the foreign exchange market," said the expert. Nevertheless, the negative effect of OFZ sales may be partly offset by the Central Bank's launch of currency repo, Nametkin believes. This tool was already used from October 2014 to September 2015 to cover the shortage of currency liquidity in the banking system. "It was then caused by sanctions, which limited the ability of companies and banks to refinance foreign debts. As a result, the demand of banks for hard currency stopped putting pressure on the ruble," he explained.
At the same time, an increase in the OFZ yields caused by U.S. investors leaving the Russian market can stimulate the demand for securities from other investors, because their real return will increase. "The effect of these restrictions could be offset by the high demand for OFZ from the banking sector, which uses government bonds to increase the amount of highly liquid assets included in the short-term liquidity calculations," the expert added.
Source: Rossiyskaya Gazeta
Photo: from open sources