April’s changes in the Constitution of Russia have not curbed investor interest in Russian bonds, market data shows. After several years of turmoil due to international sanctions and oil price collapses, the outlook for the country remains positive amid the global coronavirus pandemic.
As investors focus on economic fundamentals and political stability rather the risk of policy stagnation, the prospect of President Vladimir Putin staying in the Kremlin until 2036 does not seem to be deterring buyers of Russia’s high-yielding sovereign bonds.
Russia’s low indebtedness, prudent monetary and fiscal rules and the world’s fourth-largest FX reserves have paved the way for increasing interest in rouble-denominated government debt – so-called OFZs.
Now, constitutional changes that could extend the rule of Putin, as well as Moscow’s plans to funds its post-pandemic recovery program, have shone a fresh spotlight on the $135 billion OFZ market.
Few investors have expressed concern about Putin – who has been in power since 2000 -highlighting the preference for the stability of long-standing rulers to the ebb and flow of frequent policy change in emerging markets.
“It’s mixed news – on one hand you are always concerned when a leader is extending his time in office by hook or crook,” said Kevin Daly, senior investment manager at Aberdeen Standard Investments in London, whose firm holds OFZs.
“On the other hand you have to give credit where credit is due in terms of the fiscal management under his (Putin) leadership, which has been prudent.”
Foreign investors currently hold $43 billion worth of OFZs or around a third of sovereign Russian bonds.
Russian interest rates are well above those measured by JPMorgan’s widely-tracked Government Bond Index Emerging Markets Global Diversified which hit an all-time low of 2.65%, according to analysts.
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