Russia Plans Bond Market Return Next Week as Panic Subsides

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(Bloomberg) -- Russia plans to return to business as usual next week after a bout of panic selling over U.S. sanctions and tensions over Syria forced it to cancel a regular bond auction for the first time since 2015.

“Based on today’s situation, I don’t see any reason to continue staying out of the market,” said Konstantin Vyshkovsky, the head of the Finance Ministry’s debt department, adding that Russia may even consider increasing its domestic borrowing plan this year. “The situation deteriorated a bit this week, but nothing dramatic happened.”

Russian ruble bonds are heading for their worst week in more than a year after investors offloaded long positions on concern that the harshest U.S. sanctions to date leave all assets vulnerable. The market clawed back some losses after Treasury Secretary Steven Mnuchin said he remains opposed to the so-called nuclear option of sanctioning Russian sovereign debt.

Still, analysts at Morgan Stanley and Commerzbank AG have warned that the volatility isn’t over, especially given uncertainties surrounding the conflict in Syria, where Russia and America are at loggerheads. Investors are also watching closely as the Kremlin weighs how it will retaliate against the U.S. sanctions.

“Unfortunately, the geopolitical situation right now is such that anything is possible,” Vyshkovsky said. “We can’t exclude anything, but we saw the U.S. Treasury’s conclusions on Russian debt, which signal a low probability of the introduction of such sanctions.”

No Limits

While the ministry may boost its ruble borrowing plan, the amount won’t exceed the 1.1 trillion rubles ($17.8 billion) sold last year, Vyshkovsky said. Russia plans to raise 817 billion rubles in net borrowing this year, according to the budget.

Although this week’s volatility was exacerbated by selling from foreign investors, who owned a record 34 percent of Russia’s outstanding ruble debt before the rout, the Finance Ministry doesn’t plan to take measures to limit international holdings, Vyshkovsky said.

“Our market is open and we are pleased to have such a diverse investor base,” he said.

©2018 Bloomberg L.P.

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