Investors after Brexit began to buy Russian Eurobonds


Prices on Russian Eurobonds have been growing since Friday, June 24, when it became known that 51.4% of UK citizens voted to secede from the Eurozone countries. Prices for sovereign Eurobonds Tuesday, June 28, rose 1-2 p. p. In particular, the cost of paper “Russia-23 grew up with 106,5 108,3%, Russia-26” added to the price of more than 1 percentage point, reaching the level 102,38%. Long sovereign Eurobonds also show growth: the yield on the bonds “Russia-42” down to a minimum for the last 2 years, 4.88% per annum. Also on the minima of the yield traded securities of “Russia-30 and Russia-28”. The last Euro bond gained more than 2 points from the low of last week (of 172.2%) and rose to 174,7%.

The yield and price of bonds are inversely proportional to each other: the higher the price the lower the yield.

Experts attribute the rising prices for Russian debt securities with the increased attention of investors who are trying to shift from British and European assets in more reliable tools. “The anxiety caused by the results of the referendum in the UK on Monday continued to boost sales in the British and risky assets, and investors favored the safety tools,” wrote today in his review analyst at Sberbank CIB Alexander Golynsky. He notes that trading on the Russian Eurobond market are in a busy mode: the demand for papers is observed from mainly local investors.

On Monday, he said, the price of bonds “Russia-42 and Russia-43” was added 0.7 p. p.

The market of the Russian Eurobonds generally quite successfully resisted external negative, reflected in the fall in the capital markets, a substantial increase in spreads was observed. Prices of Russian CDS, i.e. credit default swaps, better known as “insurance against default”, has a little decreased in comparison with Friday, but indicate that a mass sell-off there.

To increase the value of Russian Eurobonds and foreign policy is influenced by the news, said the head of the Department of trade in debt tools “Aton” Konstantin Glazov. In particular, according to him, the interest in Russian assets from investors rose after reports that Turkish President Erdogan apologized for the downed SU-24. “Everyone’s counting on the warming of relations between the two countries”, — said the expert.

In addition, according to Glazov, after Brexit, many investors believe that the fed will delay raising rates. “This is good chance to buy securities in developing countries, which yield significantly higher than that of the United States or European countries,” he added.

According to calculations Bloomberg, 10-year bonds now offer a yield of 0.93 percent. Similar bonds of the Russian Federation, Brazil and South Africa will bring investors from 8.5 percent to 12 percent.

The interest in buying Russian assets were also supported by the head of the division of Amundi Asset Management on bonds and currencies of developing countries Sergey Strigo. Amundi, Europe’s largest investment company with assets of $1 trillion. “Some emerging markets safer than some developed countries”, — quotes its words Bloomberg. The Manager said that considering the increased investment in dollar-denominated bonds of Russia and Brazil.

BNP Paribas Investment Partners also made a bid for the assets of Russia, Colombia and South Africa via credit default swaps.

“This is all the consequences of Brexit, before the vote, many investors went to Cash and then again started to buy assets. We also bought the Russian Eurobonds on Friday, when all markets were falling,” — said the portfolio Manager of UK TKB investments partners” Igor Kozak. According to him, the Eurobond market looks overbought, yields of securities at low, so the company is considering the purchase of foreign assets. However, according to the Manager, Erdogan’s statement has improved the optimism of investors in relation to Russian assets.

Head of Department for debt markets of developing countries Deka Investment GmbH Peter Sutmuller told Bloomberg that took away assets that depend on Brexit less likely. “We have increased our position in Gazprom as the Russian state Corporation Brexit almost nothing associated; we bought individual bonds in Argentina and Indonesia and closed the short position at real Madrid, he said.

Tuesday, 28 June, Morgan Stanley in his review wrote that a British exit from the EU could be favourable for Russia, because this could weaken the European sanctions. “Brexit may ultimately benefit Russia, given that the UK has been an outspoken supporter of the preservation of Western sanctions”, — summarized in the report of the Bank. “Market sentiment toward Russia can improve… the chances of lifting sanctions at an earlier time will grow”, — quotes the investment Bank analysts of the Agency “Prime”.