Russian Markets Shrug Off New Sanctions

The ruble and stock market have recovered, but risks remain.
Russian financial markets have shrugged off the latest round of sanctions announced by the U.S. on Thursday, with the Russian ruble and stock markets bouncing back strongly in Friday trading.
The ruble — which saw trading volumes five times higher than usual ahead of the sanctions announcement — recovered two days of losses to stand at 75.8 against the dollar during trading in Moscow.
The RTS stock market also added more than 1% on Friday morning to cap what has turned into a strong week for the dollar-denominated index, climbing more than 5% in total over the last five sessions.
The U.S. hit Russia with its toughest and broadest sanctions package in three years Thursday, banning U.S. financial institutions from buying Russian government debt in bond auctions from June 14, expelling 10 diplomats and sanctioning 40 companies and individuals.
But the measures were softer than first feared. U.S. banks and investors will still be able to hold on to any Russian state bonds they already own, and have not been prohibited from trading in the secondary market — meaning they can still buy, sell and hold Russian government debt, just not take place directly in bond auctions organized by Russia’s Finance Ministry, Central Bank or National Wealth Fund.
“For now, the U.S. seems to have pulled some of its punches: the sanctions are not as severe as they might have been,” Scope Ratings analyst Levon Kameryan told The Moscow Times.
The new sanctions are “unpleasant, but far from catastrophic,” said Andrey Kochetkov, lead broker at the state-owned Otkritie Bank.
“Although the new set of U.S. sanctions on Russia was the tightest in three years, they still turned out to be moderate, and the Russian market felt some relief after the announcement as adverse scenarios had been mostly priced in during recent weeks,” said Sofya Donets, Russia economist at Renaissance Capital.
Russian markets had started to recover Thursday evening as details of the sanctions package emerged. Earlier in the day, the ruble had fallen as much as 2% against the U.S. dollar — a significant move in foreign currency markets — and bond yields had jumped when reports first suggested the U.S. would sanction Russian government debt.
“Any additional outflows from the market and any foreign currency volatility in the short term could be limited,” Artem Zaigrin, Chief Economist of Sova Capital said in a research note to clients. As the fallout settles, he said greater clarity over the U.S. approach could “ease the risk premium” currently priced into Russian government bonds.
The yield on Russian government bonds had increased dramatically ahead of the sanctions announcement — a sign that investors viewed them as higher risk and were demanding larger returns to invest — but pared almost all their losses by the end of the day.




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