(Bloomberg Gadfly) -- For Russia, Friday is a big day, with both S&P Global ratings and Fitch Ratings poised to announce the results their reviews of the country's debt rating.
The hope is that S&P will make a one-step upgrade to the foreign-currency rating and put the sovereign back into investment grade territory.
The ratings company has had a positive outlook on Russia since March, and with the economy growing and oil prices climbing, there's sufficient reason for that to happen.
Importantly, such a move would qualify the country's government bonds again for most of the investment-grade bond indexes.
Fitch never cut Russia into junk, so an upgrade from S&P would meet the requirement for two investment-grade ratings. This should open the door to greater inflows from foreign investors, potentially extending the local bond market's rally as well.
There are few places in the yield-starved investment grade world offering anything close to the near seven percent yields on 10-year domestic Russian bonds. For overseas investors, the currency risk looks to be abating, with the ruble's volatility falling in recent years. Emerging market investors may also judge the considerable political risks are subsiding even as the March 18 presidential elections approach.
One big variable for the rating companies has been the sanctions on Russia, but a U.S. Treasury report earlier in February suggests they are unlikely to extend to government debt.
The other big risk Russia's economic reliance on oil. The recovery in crude prices certainly helps the fiscal balance, but the government hasn't been profligate with the economic dividend. It maintains very conservative forecast of less than $50 per barrel on its Urals crude benchmark.
Public sector borrowing as a proportion of gross domestic product is, at 12 percent, very low relative to other countries. External debt has fallen by a quarter to $540 billion and Russia's foreign currency reserves have stabilized at $430 billion. Inflation has plunged to a record low of 2.2 percent from a peak of close to 17 percent three years ago.
Growth and consumer spending have been hit by the country's political isolation, but the economy has built up plenty of resilience to weather the storm of sanctions. That should see bond yields fall further from the double-digit peaks they hit in the 2014 crisis.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Marcus Ashworth is a Bloomberg Gadfly columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.
To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net.
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