Daily Market Monitor: On Thursday, further price slumps (on domestic debt market) cannot be excluded given increased yields on Russian external debt

Thursday’s bond market dynamics were predictable following the U.S.
Federal Reserve’s relatively aggressive statement accompanying
Tuesday’s interest rate hike. With the dollar 7 kopecks higher, local
bonds could not resist the trend sweeping through all emerging
markets, and yields rose with few exceptions. Longer-term, the outlook
for this segment does not look too bright either, with the prospect of
significant nominal rouble appreciation over the year diminished
somewhat after Russian policymakers raised the inflation target to 10%
from 8.5%, while again talking of an implicit nominal exchange rate
target. On Thursday, further price slumps cannot be excluded given
increased yields on Russian external debt.
After above-consensus U.S. CPI figures were released Wednesday, the
slide in Russian Eurobond prices gained momentum. Over the day, the
EMBI+ Russia index lost 0.6%, while the spread widened by 8 bps.
While a tendency for widening spreads at higher rates is universal, we
believe that Russian external debt is well supported by the Paris Club
talks and should prove less volatile than those of most other emerging
markets.