Positive news from S&P (Russia Fixed Income Weekly)

Hit by the decline in the global markets, external debt was lower last week. The domestic market was little changed, consolidating at the new levels which it reached during the May rally.
The Russian sovereign Eurobonds market was suppressed by the gradually declining Treasuries market. The yield on the 10-year UST increased by 9 bp to 4.95%, a level not seen since August last year. As a result, the low-spread bonds ended the week lower and the benchmark Russia 2030 issue lost 0.55%. At the same time, spreads demonstrated resistance to global volatility. The spread of the Russia 2030 Eurobond ended the week flat at 93 bp.
On the external corporate debt market, the bonds from the ‘quasi-sovereign’ Gazprom remained the worst performers. The Deutsche UFG CEB Gas Index lost 0.21%. State banks were also lower (-0.17%), while the high-yielding private banks added 0.11%. Overall, the spreads of most corporate securities continued to tighten. The composite Deutsche UFG CEB Index lost 0.07%, while its spread narrowed by 6 bp, reaching a new all-time low of 154.
Domestic debt consolidated at the new levels reached last week, as investor focus switched to the recovering equity market. As a result, the government bonds RGBI Index lost 0.01% and the corporates’ RCBI lost 0.09%. The primary market remained active, with demand significantly exceeding supply at most auctions. In total, Rb 13.2 bn of new corporate bonds were sold.
Standard & Poors rating agency issued a press release today, in which it announced that as a result of updating its banking industry and country risk analysis, it had moved the Russian banking system from group 9 to the more stable group 8. In addition, the estimation of the net risk-exposed assets in the case of a recession was reduced from 50-75% to 35-50%. This change reflects Russia’s stable economic growth and other macroeconomic factors. In our view, the news is likely to reflect positively on the market sentiment towards Russian banks’ debt and boost spread tightening, both on the external and the domestic markets.
Authors: Dmitry Dmitriev ([email protected])
Mikhail Volkhonsky ([email protected])