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Bloomberg 20.04.2015 Fedor Bizikov's comment "Russia Self-Sanctioning Means Missing Out on Best Yield Tumble"

Russia Self-Sanctioning Means Missing Out on Best Yield Tumble
2015-04-20 06:56:19.425 GMT

By Vladimir Kuznetsov
(Bloomberg) -- Russia’s world-beating dollar-bond rally is
of little use to Vladimir Putin. His government has locked
itself out of the international debt market at least for 2015.
As the U.S. and European Union ratcheted up sanctions last
year to prevent some of the biggest companies selling dollar
bonds, Russia responded by announcing the government would
refrain from tapping international investors. The country may
only return to foreign debt markets in 2016, even though yields
now look “very respectable,” Finance Minister Anton Siluanov
said last week.
It risks missing the moment. Yields on the benchmark Russia
2020 bond have plunged 259 basis points to 4.26 percent this
year, the biggest decline of any emerging-market securities in
dollars, as the cease-fire in eastern Ukraine eased the threat
of further sanctions and stabilizing oil prices improved the
economic outlook. An increase in U.S. interest rates or any
fresh fighting in Ukraine may undermine the rally, according to
Aricapital Asset Management.
“A very sensible step would be to make some kind of non-
aggressive issue” of bonds, Fedor Bizikov, who helps oversee
about $1 billion as a money manager at GHP Group in Moscow, said
by e-mail on Friday. “Sovereign bond yields are already pricing
in a best-case scenario.”

‘More Realistic’

Eurobond yields surged almost 4 percentage points from
Russia’s incursion in Ukraine’s Crimea region at the end of
February last year to the peak of the market turmoil in mid-
December. Russia, which has issued more than $22 billion of
bonds abroad since 2010, should be “more realistic” in its
borrowing and will use local debt auctions and rainy-day oil
funds to finance the budget deficit, Siluanov said in February.
The lower house of parliament has approved this year’s
budget that doesn’t include borrowings from abroad. While there
are no plans to borrow abroad at present, “nothing can be ruled
out,” Konstantin Vyshkovsky, head of the Finance Ministry’s
debt department said April 18 in Washington. “In theory,” part
of the ministry’s domestic borrowing plan could be replaced with
foreign issuance, he said.
Selling Eurobonds would be an “effective solution” and
allow Russia to avoid eating into its international reserves,
which are at the lowest level in eight years, according to
Alexey Tretyakov, a money manager at Aricapital in Moscow.
“Such favorable conditions won’t last long,” Tretyakov
said in e-mailed comments. “Looking at current yields, one
would assume the conflict in Ukraine is fully over and oil
prices are back to $100 per barrel.”

Negative Yields

Investors are seeking higher-yielding assets as they face
negative yields in western Europe and returns near record lows
in the U.S. The demand helped push the yield on Russia’s $3.5
billion of bonds due April 2020 to an eight-month low of 4.16
percent on April 9.
A sale “would go nicely” should the ministry offer a 50
basis-point premium to current yields, GHP’s Bizikov said.
The ruble fell 4 percent to 51.8950 per dollar on Friday,
trimming this year’s rally to 17 percent. Brent crude dropped
0.8 percent to $63.45 a barrel, up 40 percent from this year’s
low in January.
While risks in Russia are considerable, they are easy to
identify and they are decreasing, Vladimir Miklashevsky, a
strategist at Danske Bank A/S, said in e-mailed comments.
Fitch Ratings postponed its decision on Russia’s credit
score on Friday after the company resolved to examine the
situation in the economy more closely, Siluanov told reporters
in Washington on Friday after meeting with Fitch
representatives.
Eurobonds from Russia would be “polished off” by
investors, Dmitry Kosmodemiyanskiy, a money manager at Otkritie
Asset Management in Moscow, said by e-mail. “They would take
the hand that offered them off at the elbow.”