Russian Debt Market Daily: Obviously, investors should exercise maximum caution in the market now and limit their longs, as the risk of position liquidation in the majority of issues is very high now

EXTERNAL DEBT MARKET
Having started on an optimistic note yesterday, the Russian Eurobond
market was unable to keep its gains and fell 0.5-1% by the end of the day.
The selling of Russian assets was triggered by the widening bank crisis in
Russia, where the activity of Guta Bank, one of the major Russian banks,
has been suspended, and less than optimistic comments by S&P
concerning the prospects of Russia receiving an investment grade rating
(see the News). All this added nervousness to the Russian financial market,
leading to a plunge in all the Russian financial market assets, including
ruble bonds, Eurobonds and shares. In the first half of the day, prices were
up 0.25-0.375%. The Russia-30 was as high as 93.375, while the Aries-14
increased to 103.375. However, selling later pushed these assets’ prices
down to 92.375 and 102.625 respectively. As a result, in the EMBI+ index,
the Russian segment was one of the few that declined yesterday. Other
emerging market bonds mainly increased following the price increase of US
Treasuries. The situation was even more dramatic in Russian bank
Eurobonds, that fell 2-3% yesterday and extended their losses by another
2-3% today. Rumors concerning possible problems of new banks make
many investors to simply liquidate positions. Russian Sovereign Eurobonds
also fell today, as investors are actively moving into the most liquid asset –
cash. The Russia-30 fell to 91.500, while the Aries-14 declined to 101.625.
Obviously, investors should exercise maximum caution in the market now
and limit their longs, as the risk of position liquidation in the majority of
issues is very high now.
LOCAL DEBT MARKET
Despite the fact that rumors concerning Guta Bank’s problems have
circulated in the market for quite a long time, formal suspension of work of
one of the 30 largest Russian banks became a blow for the market.
Yesterday, the market took it rather calmly, as selling was observed, but
there was no mass position closing. However, the mood of investors has
obviously worsened today, as slight panic is seen in the market. Evidently,
only a very limited range of people have the information, to what extent the
situation is really grave in the banking sphere, while the overwhelming
majority of investors are subject to panic mood and rumors. It should be
noted that only several banks comprising the 30 largest Russian banks are
truly commercial banks, while the rest are to a different extent affiliated with
the State or with the non-residents of Russia. Judging by the plummeting
bank Eurobonds and total absence of buyers, the main investors’ question
now is whether commercial banks will be able to survive in the crisis. What
concerns ruble bonds, the main investors in the non-government bond
market remain commercial banks. At the moment, there are few those
willing to risk and buy the bonds that may collapse in case of possible
position liquidation by banks. While earlier, that was true in respect to
mainly the second- and third-tier issues, now it may apply to the first tier,
too. In the current situation, it is hardly possible to speak of taking any long
positions. Investments in ruble bonds look quite risky now.