Russia easing bond access for foreign investors

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On a day of good news from Brussels, Moscow has a quietly-positive announcement of its own. Russia’s Federal Service for Financial Markets, the regulator, said it would give Euroclear Bank, Clearstream and other depositories direct access to the country’s sovereign debt markets through Russia’s own central depositary.

A bit technical, maybe. But the prospect of better access cheered investors in the Russian bond market, where the yield on the benchmark 2018 rouble issue fell 10 basis points to 8.23 per cent on Friday morning.

Initially, Euroclear and Clearstream will be able to handle only state and municipal debt, and debt from foreign entities, until July 1, 2014, according to a proposal posted on the regulator’s website. But it could be expanded later to include corporate issues.

Simon Quijano-Evans, strategist at ING, said in a note on Friday:

This is a major breakthrough by any standards and something that all have been waiting for. Indeed, it supports our expectations that the government wants (and needs) to open up the domestic economy to more foreign investments.

He added:

 Although it probably won’t be a ratings driver in itself, the opening up of the domestic bond market should be seen as part of a general reform drive that would lead to an improved environment and thus ratings agency perception for an upgrade.

Russian public sector debts are low by global standards, at 10 per cent of GDP last year. But with the annual deficits rising to finance growing public spending, the total debt is forecast by the government to rise to around 16 per cent of GDP by the end of 2014.

Government budget forecasts have traditionally been conservative, notably on the oil price. But with oil down this year from a peak of $126 a barrel for Brent crude to $93.7 on Friday, Russia’s budget seems certain to come under pressure. No wonder Moscow wants to make friends with bond buyers.

Related reading:
Russia: oil gloom over St Petersburg, beyondbrics
Economy: oil dependency remains a fundamental weakness, FT special report
Russia 2012, FT Special report

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