How the Russian bond market is, and isn’t, affected by new sanctions

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1. What did the original sanctions do?

Under the measures announced the day before the invasion, many U.S.-linked investors would be barred from buying Russian government bonds sold after March 1 in the secondary market, where they trade after their initial sale. The draft EU proposals would prohibit the purchase or sale of transferable securities and money market instruments issued by Russia, its government, the Russian central bank or entities acting on its behalf. The EU ban would apply to securities or instruments issued from 14 days after the sanctions take effect.

2. What did the first set of measurements not include?

Nothing announced on Feb. 23 in response to Russia’s recognition of two breakaway republics in eastern Ukraine before the invasion began applied to existing securities currently trading on secondary markets.

3. What about the primary market?

This means that the debt is sold directly by the Russian government. Many U.S. investors and those who do business with U.S. companies already face restrictions on these bonds. EU sanctions also block the granting of “any new loans or credits” to sanctioned entities, except to finance “unprohibited imports or exports of goods and non-financial services” between Russia and other countries. . Russia’s government and companies have raised more than 16 billion euros ($17.9 billion) tapping into the eurozone government debt market since the start of 2017, according to data compiled by Bloomberg.

4. What type of impact are these measures likely to have?

By themselves, probably not much. Many analysts say Russia is in a good position to do without foreign financing, having accumulated large reserves of cash. Putin also reduced the country’s dependence on the dollar by building up a gold war chest, making Russia the biggest buyer in the world. In January 2021, its central bank’s gold holdings surpassed its dollar holdings for the first time. The share of the dollar in central bank assets has fallen from over 40% in 2018 to 16% in 2021. Russia now has a higher share of reserves in euros than in dollars. The euro has also overtaken the dollar as Russia’s main trading currency with China. But even with their limited impact, the initial round of sanctions on Russia’s sovereign debt warned global investors that stocks could still fall even after the steep declines they have seen.

• How Russian bonds have reacted to sanctions and how credit default swaps have priced in default risks.

• Bloomberg QuickTakes on the history of sanctions against Russia and on Russian-Ukrainian tensions.

• A statement from the US Treasury Department on the first sanctions on Russian debt.

• 2021 Global Treasury Sanctions Review.

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