(Bloomberg) -- The Trump administration is standing by its advice to Congress against sanctioning Russian debt, Treasury Secretary Steven Mnuchin said Wednesday, as two members of the House are attempting to drum up support for legislation that would prohibit purchases of Russian sovereign debt.
The risk of conflict between the U.S. and Russia over Syria has been roiling markets, raising Russian credit risk and weakening the ruble. Adding to the turmoil has been the introduction of a measure -- still in the earliest stages of the legislative process -- to block transactions and financing for Russian sovereign debt.
“People went from not worrying about sanctions to having an increased tailwind that the U.S. might sanction Russian government bonds at some point this year,” Peter Kisler, a portfolio manager at North Asset Management in London, said in a telephone interview.
The ruble erased a drop of as much as 3.1 percent, trading 0.7 percent stronger at 62.5950 against the dollar as of 7:35pm in Moscow, after Mnuchin’s remarks, heading for the first gain in five days.
Democratic Representative Joaquin Castro of Texas and Republican Mike Turner of Ohio are co-sponsoring a bill in the U.S. House to further squeeze Russia by sanctioning its debt. House Foreign Affairs Committee Chairman Ed Royce, a California Republican, said he’s willing to discuss the legislation, but House Republican leaders haven’t indicated they want to pursue such a step.
“There has to be an accounting for this behavior,” Royce said, citing Russian interference in the U.S. election, the poisoning of a former spy in London, and Moscow’s support for Bashar al-Assad’s regime in Syria.
Even if it gets through the House, there’s no guarantee the Senate would pass it or even take it up. And while the Trump administration has put in place other sanctions, it has consistently stopped short of hitting Russian debt in part because of the pain it would wreak across markets outside Russia’s borders.
A Treasury report released in January advised against hitting Russian debt because of the risk it could destabilize markets and spread beyond Russia to have “negative spillover effects into global financial markets and businesses.”
Asked whether he stood by that report, Mnuchin on Wednesday said: “I do.”
“I’m not going to comment on what we’re going to do going forward and what we’re not going to do going forward, you shouldn’t interpret anything into it,” he said to reporters after a House hearing.
©2018 Bloomberg L.P.